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Develop Your Business With Profits in Mind

We want to dive into how to make your business profitable, by talking with author Mike Michalowicz. Mike wrote the book on how to achieve success in the industry by focusing on profits first.

The Profit First Ideas

The original concept for writing this book was to fix my own challenges. I became aware that I wasn’t the only one going through financial challenges.

We want to talk a little bit about how you came up with this profit first system and why. Then, a little bit about the nuts and bolts.

Quite a few accountants and bookkeepers read the book and think it’s anti-accounting. However, there are those that see this as an umbrella over accounting. It’s necessary for many entrepreneurs.

My accountant would tell me to never look at my bank account.

“It’s not a representation of where your business stands. What’s representative of it is your income statement, your balance sheet, your cash flow statements, KPI’s, budgets, etc.”

All of that stuff would fly over my head. And still does. I can barely read an income statement and am mostly faking my way through it.

What I would do is revert to is what I call bank balance accounting. I would log into my bank account, see what money is available, and react in a couple different ways.

If there was a lot of money I’d go, “Oh, I can spend it!”

If there’s no money I’d say, “Oh, damn.” And panic would ensue and I’d sell anything to anybody.

It was a very reactionary cash management system. But it was my ultimate shortcut.

What I came to realize is that it’s a very poor cash management system. But I also realized I had to do something more effective, but couldn’t find a way to actually do it.

I think this is typical for many entrepreneurs. We are really good at being promoters for our business and operators.

When it comes to the numbers we think we’re really bad. So we revert to this ultimate shortcut.

I think to change our behavior, even if we know there’s a way that will serve us better, is really hard.

I developed this system so that I don’t need to change anything. In fact, I continue to do what I’ve always done:

I log into my bank account daily. However, by using the Profit First system, I start channeling my natural behavior to bring the results I want.

That’s the key. Don’t try to change yourself, change the system that can channel your existing behavior to get the results you want.

The essence of Profit First is this: Historically, most businesses have one maybe two bank accounts. They have one primary checking account that all their deposits go into and all the bills get paid out of it.

The problem that happens is when we’re looking at that account, when money comes in we say, “Wow, I got a lot of money. We can spend it.”