Profit First Accounting and Paying Yourself:
This episode is about stepping out of your comfort zone and flipping your finances and accounting on its head. In business we have been following the same formula for generations, Sales-Expenses=Profit. This means profit comes last, which ultimately means you come last. It is time to flip that formula and enjoy your profit now with today’s co-host. Mike Michalowicz is the author of the book Profit First, a book that I have mentioned many times on LIVETHEFUEL. Mike has launched three multi-million dollar businesses and sold the second to a Fortune 500 company. Mike is also the author of three other great books, The Toilet Paper Entrepreneur, The Pumpkin Plan and the most resent Surge. This is a great episode for anyone who wants to have a little more financial freedom in their life/business.
On This Episode You Will Hear:
- [03:45] What book should I be reading now? The answer, what is your biggest challenge right now? You will then find the right book to read.
- [05:23] Where the book, Profit First came from. Mike had start a lot of different businesses and lost a lot of money. Building those companies was not profitable, he was surviving check by check. He sold two companies and one to a fortune 500 company. He thought this was the way to make money and became an angel investor to try and repeat the process but he lost money fast. This was the necessary wake up call he needed. The mentality of being profitable one day in the future is wrong. The classic accounting formula of Sales – Expenses = Profit, which means your profit comes last, is archaic.
- [11:46] Afraid of change. Mike has literally flipped the accounting formula and put Profit First. It’s the pay yourself first system for your business.
- [15:07] Parkinson’s Law: As the supply of the availability increases, our demand for it increases, but as it decreases we become more frugal, innovative and use less of it. Mike uses a cookie to describe Parkinson’s Law. When we force ourselves to use less money in our business our behavior changes.
- [21:35] “Money to brains ratio” and “Keeping up with the Jones’s”. The 401K. When you first adapt to Profit First, it can be painful to begin with. Very quickly, when you see those profits stacking up, it makes it all worth while.
- [25:24] Dividing up your income into different accounts.
- [32:46] If you don’t know what you are doing, get help. There is no shame in asking. Scott is visiting Profit First HQ.
- [35:38] Profit First Professionals: Experts that maximize companies profits permanently.
- [37:01] Profit First Professionals launched 2 years ago. Profit First Professionals came from people who had read the book but wanted help implementing it and someone to hold them accountable for it. Now they have 160+ bookkeepers and accountants supporting it.
- [38:11] 99% of Accountants that have come across Profit First have converted to the philosophy. The ones that don’t are the ones that are not willing to change the way they do things. Profit First accountants apply logic and overlay that with behaviors. A lot of accountants just can not make that leap.
- [40:08] Some people want to go all in when they read Profit First and set aside huge percentages but that’s like putting a frozen mug into a hot oven, eventually it will shatter. One of the important steps of Profit First is to take small steps.
- [42:42] Taking small incremental steps and relating accounting to the fitness world. Profit First is a Dial not a Switch.
- [45:18] Quarterly Distributions.
- [47:02] When the profit comes out, it is for you to experience financial freedom. This is not to be used to reinvest in your business, that’s a whole different envelope aka account. If you are putting it back into the business you are defeating the system. If you cannot pay your expenses, you cannot afford your expenses, so you have to find a better way.
- [48:43] Final Words
Profit First Links and Resources
- Profit First Book
- Mike on Twitter
- Mike on Facebook
- Mike on Instagram
- Forbes Article: How Mike Michalowicz went from Unknown Self-Published author to mainstream publishing success
- Mike’s Author Page on Amazon with the rest of his books
- Profit First Podcast
- Profit First Professionals
- Shannon Simmons on Profit First Podcast
- Book Yourself Solid
- Michael O’Neal
- John Lee Dumas
- Pat Flynn
- Tai Lopez
- Michael Port – Book Yourself Solid
- Shannon Simmons
Mike’s life purpose is to eradicate Entrepreneurial poverty, that’s why he does what he does. It’s about stepping into the un-comfort zone. Progress is made when people do something new when something has impeded their progress, what impedes progress is doing what is familiar. Get comfortable with being uncomfortable. That is where growth is. That is where the opportunity is.
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