Profit First

About the Author

Mike Michalowicz is a renowned entrepreneur and author, celebrated for his innovative approach to business management. He launched and sold two multimillion-dollar companies before turning his attention to helping other entrepreneurs succeed. Michalowicz is the co-founder of Profit First Professionals, a membership organization that trains accountants, bookkeepers, and coaches in the Profit First method. His work has been featured in The Wall Street Journal, and he is a popular keynote speaker, sharing his insights at events like TEDx, creativeLIVE, and INCmty. His other bestsellers include The Pumpkin Plan, Surge, and The Toilet Paper Entrepreneur.

Main Idea

Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz introduces a counterintuitive yet effective cash-management system. Michalowicz flips the conventional accounting formula of Sales - Expenses = Profit to Sales - Profit = Expenses, ensuring that profit is prioritized from the outset. This method leverages behavioral finance principles to help businesses manage their finances better and achieve sustainable growth. By allocating income across several designated accounts, businesses can enforce fiscal discipline and inspire innovation.

Table of Contents

• Your Business Is an Out-of-Control Cash-Eating Monster
• The Core Principles of Profit First
• Setting Up Profit First for Your Business
• Allocation Percentages
• Putting Profit First into Motion
• Destroy Your Debt
• Find Money Within Your Business
• How to Keep It from Falling Apart

Your Business Is an Out-of-Control Cash-Eating Monster

Many entrepreneurs find themselves in a financial nightmare, despite their business's survival. Michalowicz describes these businesses as "cash-eating monsters," constantly draining resources and causing perpetual stress. The problem stems from the traditional approach of viewing profit as a residual outcome. By the time businesses think about profit, they have often already spent their revenue on expenses.

“No matter how many years you’ve been at the grind, you are probably well aware of the statistic that roughly 50 percent of businesses fail within the first five years. What they don’t tell you is that those failed entrepreneurs are, in fact, the lucky ones!” — Mike Michalowicz

Michalowicz emphasizes that simply having a great idea, talent, and resources is not enough. Cash is king, and mastering financial security by prioritizing profit is essential for transforming a business from a financial disaster to a profitable enterprise.

The Core Principles of Profit First

Parkinson's Law

Parkinson's Law states that "work expands to fill the time available for its completion." In the context of business, this translates to expenses expanding to match available revenue. To counter this, Michalowicz advises intentionally limiting the amount of money accessible for operating expenses. By doing so, businesses are forced to become more efficient and innovative.