Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine

Mike Michalowicz ยท First published February 21st 2017 (first published June 24th 2014)

Author of cult classics The Pumpkin Plan and The Toilet Paper Entrepreneur offers a simple, counterintuitive cash management solution that will help small businesses break out of the doom spiral and achieve instant profitability.

Conventional accounting uses the logical (albeit, flawed) formula: Sales – Expenses = Profit. The problem is, businesses are run by humans, and humans aren’t always logical. Serial entrepreneur Mike Michalowicz has developed a behavioral approach to accounting to flip the formula: Sales – Profit = Expenses. Just as the most effective weight loss strategy is to limit portions by using smaller plates, Michalowicz shows that by taking profit first and apportioning only what remains for expenses, entrepreneurs will transform their businesses from cash-eating monsters to profitable cash cows. Using Michalowicz’s Profit First system, readers will learn that:

– Following 4 simple principles can simplify accounting and make it easier to manage a profitable business by looking at bank account balances.
– A small, profitable business can be worth much more than a large business surviving on its top line.
– Businesses that attain early and sustained profitability have a better shot at achieving long-term growth.

With dozens of case studies, practical, step-by-step advice, and his signature sense of humor, Michalowicz has the game-changing roadmap for any entrepreneur to make money they always dreamed of.

Book Summary

“Profit First” is a book by Mike Michalowicz that advocates for a simple yet effective way to manage the finances of a business. The book suggests that business owners change their traditional approach of prioritizing revenue growth over profits and instead aim to generate a profit first and foremost. This can be achieved by implementing a simple yet effective system that involves creating a series of small bank accounts for specific purposes such as operating expenses, taxes, and owner compensation.

Key Takeaways

1. The conventional approach of prioritizing revenue growth over profits is flawed and leads to financial instability.
2. Implementing a profit first mentality can help ensure a steady flow of profits and reduce the risk of financial distress.
3. Create separate bank accounts for specific purposes such as operating expenses, taxes, and owner compensation.
4. Automate financial systems to prioritize profit distribution.
5. Focus on maximizing profits over revenue growth.
6. Prioritize cost-saving measures and eliminate wasteful spending.
7. Monitor cash flow closely and adjust the profit distribution system as necessary.
8. Keep a tight control on spending and prioritize essential expenses.
9. Make profitability a non-negotiable goal and track progress regularly.
10. Adopt a long-term perspective and continuously refine the profit distribution system to maximize profits.