Profit First by Mike Michalowicz
I read this book three or four years ago now, and it absolutely revolutionized my business. There’s a few things in my business life that have been key tipping points for me. They have drastically changed the course of how our business has grown and how I have grown as a business owner.
This was one of the first big ones. I can see a series of big events, three or four now, almost one a year, it seems like, but without this one to get things started, none of those other ones
First, it forced me to confront reality of where my business was at and what I was doing with money.
Second, and the reason I really, really loved this book, is it was very simple, it was easy to understand, the system was easy, it was easy to implement. I mean that because I get nothing out of selling you this book or telling you why it’s good. I give this book away on a regular basis because of the impact it had on me and my business, it was just huge.
If you’re a small business owner or solopreneur, this book had principles in it that can literally change your life and change your business and I mean that. Getting your finances in order and getting your money on your side is such a huge step and it was a big foundational step for me. I want to make sure that that’s clear. The reason I love the book is because it helped me experience profit and put Profit First, just like in the name.
We get into business with sort of the opposite as our goal, but often times and you may get into business for other reasons, but that’s
one of them, right? I mean independence and better finances. When you get started, you’re willing to make some sacrifices, and that’s all
So that’s the reality of where we’re at when we start the book. The solution that Mike comes across and I see this in other books that have been life-changers for me is that we have to change our habits. Mike talks about confronting reality about the change has to come from you and the habits you make. There are four aspects that go into that, and I encourage you to request a free copy and read this chapter. I believe it’s chapter two. Really read chapter one and two, because one sets the stage, but chapter two talks about, first of all, the small plates principals, and I love this.
Profit First, in its simplicity, in its core is the envelope system, but for your business. I had already read Dave Ramsey’s book, The Total Money Make Over. It’s about personal finance, getting out of debt, and it talks about the envelope system. Mike Michalowicz calls it breaking down into the small plates in Profit First. So that’s the third aspect, applying that principle to your business.
Aa small business owner, as a micro-business at the time with one or two employees, that really resonated with me. Then it talks about serving sequentially and this is the importance of you need to pay Uncle Sam, because if you don’t pay your taxes, you’re going to end up in deep trouble in the long run and putting profit first. He discusses the importance of divvying out your money in accordance with what is really most important . He goes into why that’s most important in case you need a reminder, and he has some really good examples about that. Number three is about removing temptation.
Mike has some real practical hands-on things about setting up your bank accounts that you can do very quickly. Because I read the book in the mountains of West Virginia on a weekend vacation while visiting some friends, I needed to get back to town to take those steps. I knew if I could just get in the bank, if I could just get online in an hour, I’d be good to go. So, I loved how simple it was because it made sense to remove that temptation.
One of the things I love about the book is that every chapter ends with easy first steps, and sometimes there’s one, and sometimes they’re three. But Mike is very clear, go out, stop reading, do this. Now, if you’re trapped in the mountains, you can’t do it right away, and so you keep reading and you get even more excited. But he makes it very clear, you need to go do this now, you need to go do this now and every chapter ends with some easy first steps.
The first one I believe it is in chapter two is open a new bank account for your profit and put 1% into it. So we start setting aside profit today, we’re going to make that a priority. Chapter three talks about the next mechanical steps. I found those took me about an hour or maybe two to do. It was very easy to get the ball rolling one step at a time. Chapter four, I believe it talks about doing your instant assessment and this is really cool.
He gives you in about 15 minutes, maybe less, if you want to know where you should be and start to get a picture of your target. You do this instant assessment and the results are a little bit shocking. You’ll find that you’re way off where you really want to be or where you should be for you industry.
Mike talks about allocating percentages and it’s really interesting.t He gets into sort of assigning your money and doing this envelope style or the small place style budgeting. He talks about targeted allocations, percentages and your currents. You do this instant assessment and say, “Okay, this is where I want to be when my business is healthy, not even when it’s healthy, when I hit my goal.” It might be a one-year goal or a five-year goal. For me, it was a one-year goal, I felt like I could get there in a year. These are my percentages for profit, this is what my profit percentage is going to be, that will mean I need to set aside this amount for taxes, this amount for operating and he gets into some of those details.
So you set your targets and then you evaluate where you are currently, and that says, “Okay, this is where I’m starting and this is where I want to go,” and you track that. You get into putting everything in motion.
Mike breaks it down into an easy two-week cycle. His recommendation is the 10th and the 25th and that works really well. Take your money and distribute it to your accounts, according to your current allocation percentages. Then every quarter, you take your profit. Being able to know that there was going to be something, some bonus for all the risk, all the work as a business owner, being able to know that that was coming every quarter was beautiful.
Mike doesn’t just leave you hanging. He talks about how to get to profit and some of the steps that you can take. He also talks about dealing with debt and a lot of his principles are the same as the ones in Total Money Makeover. Mike goes into the same kind of ideology. Total Money Makeover is a book written by Dave Ramsey. It’s a personal finance book, but he goes into the debt snowball, and chewing away your debt.
Mike also talks about cutting and evaluating waste in your business. He goes into that with respect to ingenuity and finding ways to manage your expenses, to cut them, and how making that a priority turns into profit. The fastest way to get a profit is actually to cut expenses, is much faster than trying to make another sale, and Mike gives some really good examples for that. He talks about dealing with bad clients. One of the ways that you cut expenses in the long run is you get rid of clients that are not a good fit, because they’re eating up time and energy and then sometimes they’re actually eating up money.
A client that breaks even, unless they’ve got some sort of intangible bonus, like you might have a client that breaks even, but they bring you four other profitable clients a year. Most of the time a client that’s not making you money is a bad client. Mike talks about cutting the cord, although he has a whole other book where he deals with that in more detail.
Selling smart is another key concept. This is a lesson that I carry with me to this day: should we add this service, should we follow that idea? I get suggestions all the time from clients and fellow business owners saying, “Oh, you should do this, and you should do that.” And they’re often good ideas. But are we stretching ourselves too thin and sacrificing profit by wasting time and energy and resources, not selling smart, selling things that we’re really not good at?
Hopefully, that gives you an overview of how Profit First can help you grow your business. More importantly, you begin experiencing real profit. It’s so motivating having that security, having that system in place. I still follow to this day, even though that was several years ago, and I’m able to work knowing that there’s going to be a profit every quarter.
I get to decide how much that’s going to be with my allocation percentages. I I needed that change, in the way I handled my money and in the way I looked at expenses to build a foundation that