The book Profit First is by Michael Michalowicz is a great book that I used to transform my business money management at the start of the year. I recommend it to everyone.
It will change the way you view your business finances, and it will help you keep your business healthy. Listen to this episode to hear about why this book is the key to transforming your business “from a cash-eating monster to a money-making machine!”
Here’s the podcast episode:
Or if you’d rather watch the video:
Today, we’re going to talk about why you should read the book Profit First by Mike Michalowicz.
I have to imagine that sounds pretty good. Anything with the word profit in it sounds good to most entrepreneurs and entrepreneurial-minded people.
I don’t feel like I’m taking away from your reading experience by sharing this, because there’s nothing I can say in 10 minutes that’s going to be as accurate as just reading the book. So I definitely recommend you read it! You can get it on Amazon. I’m not an Amazon affiliate or anything, but I know a lot of people get books from there.
Transform Your Business
The tagline is probably one of my favorite parts about the book. It highlights exactly what you’re going to get when you crack open the cover. It says “Profit First”, and then it says “transform your business from a cash-eating monster to a money-making machine.”
How Profit First Helped Me
Before I implemented Profit First in my own business, that’s exactly how I felt about my business. I felt like it was a cash-eating monster. It felt like I could keep giving it money and it would never be enough. You may be able to relate to that.
The very first day I set it up, I immediately felt better about my business. I was able to see what amount of money needed to go where.
The Profit First System
Set up a Series of Bank Accounts
Before I talk about that, I’ll go ahead and talk about what the Profit First system looks like.
Personally, I was already doing this because I knew I needed to pay my quarterly taxes. I knew it would be easier for me to keep track of quarterly taxes if they weren’t just sitting in my main account because then I would think that I could spend that money.
So I had my main account and I had a taxes account for my business. However, I still didn’t have a very good idea of where all my money needed to be and when.
Mike has you set up a series of bank accounts. This includes things like:
- Income (your main account where all your money comes in)
You also have a couple of other accounts related to operational expenses and things like that.
Plan for Profit
One of the things I really love about this book is that they plan for profit.
One of the things I learned in the army is that if you don’t plan, you’re planning to fail. You have to plan for success.
That little inclusion was just amazing to me, because what’s our inclination to do with the so-called extra money? We don’t use it as profit. We typically reinvest it back into the business, which causes the business to become that swelled-up, cash-eating monster.
Now, this isn’t to say that you shouldn’t allocate any funds at all in investment and things that your business needs. But, he says you can even start very low.
I have about 20% that goes into my tax account. You need to make sure because every time you do your allocations you’re putting away profit money.
For me, it lines up really well, even though I’m paying my estimated taxes. I’m also getting a quarterly profit distribution from my own business.
So that’s what he has you do. Once per quarter, you get to take half of what’s in that account and spend it however you want to, just not on the business. The beauty of this is that because you take half, you don’t take the entire thing. That other half stays in there.
So let’s say your first quarter is $500. You take $250, even if you earn the same amount for the following quarter. Even if you earn the same amount the following quarter, there is $250 already in there.
Since you get another $50 later on, now you have $750, half of which is $375.
At this point, you get to take that $375 out and leave the other $375.
The number goes up for the next quarter, and you always take half.
It’s Beneficial to Your Family Life
Eventually, your quarterly profit distribution is going to be very sizable. You’d be able to afford a vacation or buy tickets for an awesome experience for you and your family.
I think that that’s what makes it so awesome; you get to take out that money and do something with it.
If you have a family, they would see the benefits of your business as well.
Don’t Let Your Business Deplete Your Resources
As entrepreneurs, oftentimes we go into business thinking we have more control over our time than we really do. But if we’re not careful with our money and time, our business will eat all of it.
There’s never a moment where your business is like, “Okay, I’ve had enough. I don’t need any more of your time or money”. There are always things that need to be done.
I think the allocation of the profit helps so much because it’s easier not to touch your account which is specifically made for profit. You’re stealing from yourself if you touch it.
Assess Your Business’s Health
One of my favorite chapters in the book is Chapter 4, which assesses the health of your business.
If you’ve listened to any of the other episodes of the podcast up until now, you know I’m all about healthy, consistent, and scalable business growth.
In the chapter, there’s a formula and a chart for you to fill out. Once you’re done, it can be a bit of a shock how unhealthy your business is.
My case wasn’t that bad, but the author also describes some scenarios that were pretty bad. That’s okay, you’re going to start fixing it instead of continuing on like you have been.
Once you’re done with the assessment, you’ll see where your business is hemorrhaging money. Your business is a bucket with holes in it, which you didn’t realize were there. So the money is just coming out.
That’s the whole point of Profit First; the creation of a healthy business. You don’t want to have to stress out over funds if you don’t have to, so that is why you should go read Profit First. It’s not a super long book, and you’ll be able to implement things as you go.
He actually gives you that direction. Stop reading right now and go do this.
Let me know if you read or implement the book. Go ahead and leave a comment, or contact me on any of the social media channels in which you find this episode.