Introduction
Profit First, as the title suggests, is straightforward, emphasizing the core focus of the book. Mike Michalowicz, a renowned entrepreneur and author, delves into innovative financial management strategies in this work.
Why I Read It
Profit is not an event; it’s a habit.
One of the first questions one of my business coaches frequently asks is, “Are you paying yourself?” So many times as entrepreneurs (especially if you begin with a side hustle like me), we don’t manage our business to give us a paycheck. If we don’t need the money, we continue to rely upon our day job for the cash flow needed in our personal lives. We tell ourselves, “I’ll pay myself when I make enough to replace the income of my day job.” Sound familiar?
In doing so, we then don’t manage our business to budget for paying ourselves. We use all our cash to buy the latest course, to stock up on inventory, or to buy expensive marketing materials like inserts and business cards. If we don’t pay ourselves from the beginning, odds are we’ll never pay ourselves, especially when we want to make a break from the day job or find ourselves needing that second income.
When many of my colleagues would answer “no” to the paying ourselves first question, our coach would recommend that we read Profit First. So this summer, I added the book to my set of beach reads.
Quick Overview
The formula is sales minus profit equals expenses.
In Profit First, Mike Michalowicz emphasizes the importance of prioritizing profits over expenses and offers practical steps for implementing this profit-first methodology. In essence, he suggests that making a profit should not be a sporadic achievement, but a consistent practice.
This formula succinctly captures the essence of the profit-first approach. By deducting desired profits from total sales, businesses are compelled to adjust their expenses accordingly.
The Nitty Gritty
Bank balances don’t compel you to be frugal; they give you permission to spend.
In Profit First, Michalowicz outlines a system which is more about budget management in nature than accounting. An understanding of accounting is helpful, especially the workings of your own profit and loss statements and balance sheets.
Thankfully, his sense of humor does not detract from the subject manner. Instead, it lightens the pace for those of us who are glad to leave our accounting and financial management textbooks back in the dorm room. That said, it is easy to get a little lost in the calculations he lays out. I’ve actually ready the book twice and asked a lot of questions from my colleagues about how they use the approach to pay themselves.
What I Found Helpful
In all candor, I found it hard to switch to opening the recommended bank accounts. I thought I could manage my budget using a simple spreadsheet. Trust me – it doesn’t work.
Once I began to implement Profit First in my own business, I found it really forced me to review my product margin and operating expenses. (Did I really need that fancy app in my Shopify store if no one was using it?) It does take a while to find the perfect balance for the weekly “splits” as I call them to make sure one account isn’t overfunded at the expense of another.
I found I also began to seek out financial management tools to assist with the process. I switched to an online banking system which can manage my splits for me. Profit First is also an important management philosophy I now like to see in all my business coaches and their training programs.
Conclusion
In summary, Profit First by Mike Michalowicz offers a transformative perspective on financial management. By prioritizing profits and reshaping the way businesses approach expenses, Michalowicz provides an actionable solution for entrepreneurs. This book is a must-read for anyone who is feels they are profitable but who can’t seem to make paying themselves a priority. Michalowicz’s ideas are easy to implement, making Profit First an invaluable resource for entrepreneurs striving for sustainable profitability.
Star-Rating
4/5
Some business books you read once and instantly absorb and implement the content. Some business books you return to periodically to be reminded of the lessons they teach. Unfortunately Profit First can be difficult to grasp at first, which is why I admitted to reading it a second time. Now, it serves as good reference book when I need to check myself against my financials and business processes.
Start reading today – Profit First
Dorene Nowatzke 