Profit First
Mike Michalowicz · 2014
Finance & Investing
Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
Mike Michalowicz flips the traditional accounting formula on its head. Instead of Sales - Expenses = Profit, he proposes Sales - Profit = Expenses. By taking profit first and operating on what remains, entrepreneurs force themselves to run leaner, smarter businesses.
Context & Background
Most small businesses operate on the Survival Trap: revenue comes in, expenses eat it all, and the owner takes whatever's left (usually nothing). Michalowicz's Profit First system applies the behavioral economics principle that we adjust spending to match available resources — so if you take profit off the top, you'll find ways to run the business on less.
The Profit First system: set up multiple bank accounts (Income, Profit, Owner's Pay, Tax, Operating Expenses) and allocate predetermined percentages to each when revenue arrives. Small plates — just as eating off smaller plates reduces calorie intake, running expenses from a smaller account reduces spending. Target Allocation Percentages guide businesses toward healthy financial ratios.
The book has spawned a movement with hundreds of certified Profit First Professionals helping businesses implement the system. Thousands of businesses credit the methodology with their first profitable year. The approach has been particularly influential among small business owners and solopreneurs.
Quotes from Profit First
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