Book Review: Profit First by Mike Michalowicz
As a business owner, how many times have you wondered why you have little to no profit at the end of the month or year? Especially when your accountant has shown you a profit on your financial statements but you are left wondering where that profit actually is! In response to this, you become frightened or stressed about the year ahead and start focusing on making more money. Profit First by Mike Michalowicz debunks the expectation that “when I make more money I’ll finally have a business that generates profit.” Profit First says “More money won’t solve your problems.” Shifting how you think about money will solve your problems. To support this new mindset, you will need to have a system.
Business owners have been conditioned to analyze their accounting statements and financial statements. Often looking at bank balances can cause a lot of worry and upset, especially if it is month-end and it’s close to zero and you have a whole lot of expenses to pay on the first of the month. Profit First doesn’t want you to change this behaviour of looking at your bank accounts but it does want you to put guardrails around it. Imagine how it would feel to look at a system of bank accounts and have an immediate view on all of your business cash flow. Which, in turn, allows you to make important business decisions and gives you peace of mind that your taxes are saved for, your personal salary is set aside, and business operating expenses are covered.
Ironically, in the age of technology where there is an app for everything, more and more people are finding their finances complicated, blurry and stressful.
Mike Michalowicz has developed a cash management system for businesses that is based on the envelope system. The envelope system has been an effective money management system since the days of my grandma and most likely for generations earlier.
I have been teaching and implementing a version of the envelope system to both personal and business clients for over seven years and the system works like a brilliant, well-oiled machine. Mike Michalowicz adds a layer in his system by taking profits first. Taking profits first is a simple concept that will revolutionize a person’s business. Profit First says if you can operate your business on 100%, you can operate it on 99%. That 1% is now profit and you’re running a profitable business. Don’t take shortcuts. It’s not a complete system if you only take profits first. All the others steps must be followed for the system to be effective.
Who should read it?
All Business owners
If you only have time to read one chapter:
If you want a shortcut to the meat of the structure then skip to Chapter 6 – Putting Profit First Into Motion. But if you are not ready for a shift in your business cash flow management then start from the beginning of the book and understand the philosophy as to WHY you would set up a system like this.
If you only have time to read one paragraph:
Knowing your cash position is paramount. But the most common resources given to business owners are from their accountants so it only makes sense that financial statements seem to take top billing. Read this to learn how to make knowing your cash position a priority.
(Chapter 1: Your Business Is An Out-Of-Control Cash Eating Monster, page 26-29)
If you only have time to read one sentence:
Only one sentence… that’s a tough one. But here it goes:
“This system will bring immediate clarity on how much money pours right through your business.”
(Chapter 6: Page 105)
Okay, one more:
“By now you’ve figured out that focusing solely on top line thinking (sales, sales, sales!) does not lead to profitability.”
(Chapter 8: Page 137)