May 11, 2021
Brian chats 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.
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.
Profit, on the other hand, 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, profit-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 is designed to manage 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. For business owners, the Profit First method sets up a similar intervention in the owner’s bank account.
“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.
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About Brian and the Mission Driven Business Podcast
Brian Thompson, JD/CFP, is a tax attorney and certified financial planner who specializes in providing comprehensive financial planning to LGBTQ+ entrepreneurs who run mission-driven businesses. The Mission Driven Business podcast was born out of his passion for helping social entrepreneurs create businesses with purpose and profit.
On the podcast, Brian talks with diverse entrepreneurs and the people who support them. Listeners hear stories of experiences, strength, and hope and get practical advice to help them build businesses that might just change the world, too.