Question of the Week
Being Profit First
I’m so excited to share with you the latest Mission Driven Business podcast episode with Mike Michalowicz, the mastermind behind Profit First Professionals and author of books for entrepreneurs and small business owners. Mike shares his experience growing several multi-million-dollar companies, only to lose almost everything. He then details how hitting rock bottom became the foundation upon which he built the Profit First method, which has yielded him 14 years of profitable quarters and is now used by more than 500,000 small businesses. He gives the best foundation for building a profitable and purposeful business.
Make profit a priority.
The Profit First method developed by Mike rewrites the classic accounting formula from Sales – Expenses = Profit to Sales – Profit = Expenses. Why? Because when something is a priority, it doesn’t come last, Mike noted.
“It’s human nature that when something comes first, it’s the priority. When something comes last, it’s the mañana syndrome,” he said. “That’s when I said, ‘I think the formula is flipped.’”
Profitability brings stability.
One of the problems with the original profitability formula is that increasing sales isn’t always the driver of sustainable growth, Mike said. More sales can translate to more stress, more dysfunction, and less organization.
“It starts actually causing a business to crumble because it doesn’t have runway,” Mike said.
On the other hand, profit can bring stability to an organization by buying a small business owner time. When small businesses have one to two months in cash reserves, they don’t have to take on stressful panic sales.
“When a business takes its profit first, they actually grow faster, revenue-wise, than their contemporaries,” Mike said. “They are much more calculated in their growth.”
Don’t change yourself. Channel yourself.
Since flipping the formula, Mike has achieved 48 profitable quarters in a row. That’s because the revised formula matches human behavior. Or, as Mike said in the episode, “We can’t change ourselves. We channel ourselves.”
Mike learned this lesson first for exercise. He put his gym shoes on top of the toilet seat as an intervention, so he would have to pick them up first thing in the morning. The Profit First method sets up a similar intervention in the owner’s bank account for business owners.
“By pre-allocating business to these different accounts or envelopes, now you know what money is intended for what purpose, and you behave within the confines of what’s available,” Mike said.
Quote of the Week
“When a business takes its profit first, they actually grow faster, revenue-wise, than their contemporaries.” – Mike Michalowicz,
Task of the week
Take 30 minutes this weekend and treat yourself to this episode full of insightful and actionable tips. You can find additional resources below. And as always, I’d love to hear what you think. You can contact me at the links below.
- Mike’s books: Profit First, Clockwork, The Pumpkin Plan, Fix This Next, The Toilet Paper Entrepreneur, Surge, Get Different: Marketing That Can’t Be Ignored!
- Profit First Professionals
- Mike’s Twitter: https://twitter.com/MikeMichalowicz