When a friend told me about Profit First, it sounded like a solution for those who had trouble using and understanding GAAP (Generally accepted accounting principles). I had just completed a special bookkeeping project for my friend's business and I had seen the challenges that he faced. The one thing I remember from our conversation was that he had worked over thirty years in his industry and had been successful in selling many units over the years. His question was, "Where's the money?" He is financially successful but thought he should have much more to show for his successful sales career.
I decided to buy the book and see for myself what I couldn't wrap my head around from my client's description. I had limited ability to think outside the normal accounting/bookkeeping mode since I've been doing bookkeeping for others and myself for many years and support a number of clients who use proprietary software to maintain their books. Bottom line: I'm glad I read the book and followed the instructions for setting up the specific bank accounts Michalowicz suggests; after I took the quick assessment of one of our businesses, I was able to see where our allocation assumptions had left us--with booked profits but very little cash.
Mr. Michalowicz writes from the standpoint of having started a number of businesses and facing the stark reality that if one's expenses aren't allocated correctly, the business is often just breaking even or less. Putting aside allocated profit first requires the business owner to then take a sharp pencil to his/her expenses and allocate them in percentages that are in line with the profit allocation he/she has set.
I've only just begun to use this system and can see results from it already. It makes sense since I take the profit off the top of each sale and effectively get it out of site so I'm not tempted to spend it when the squeeze is on. It's an entirely different way of thinking for me in our businesses; instead of Income-expenses=Profit; Income-Profit=Expenses. Then it's up to the business owner(s) to work on suggested expense allocations to get them in line with the profit allocation chosen. In the (Almost) Instant Assessment, the author offers suggested expense allocations based on the size of the enterprise. This book has enough accounting and economics argot to satisfy the accounting purist, but will also make sense to guy or gal who finds all that "accounting stuff" boring and even irritating---" I'm out there selling every day; you (bookkeeper) just make it work!"
Mike Michalowicz writes in an easy, declarative style, using humor, often self-deprecating, and anecdotes from his work and family life (the piggy bank story is both poignant and instructive). He shares his own stories of learning through mistakes, does not make grandiose claims, and fairly early on in the book asks the reader to send him a personal email stating, "I've drawn the line in the sand," thereby committing the reader's business to profitability. I did that, by the way, and got a response from Mike. There was something about the challenge that took me back to the movie Network when news anchor Howard Beale tells his listeners to open their windows and shout, " I'm mad as hell and I'm not going to take it anymore.” The commonality is that both actions were about lines drawn in the sand.
This book is an easy and captivating read. I felt as if I knew the writer because of his candor and style, and recommend the book to anyone with a business, especially if you've ever seen a disconnect between what your accountant tells you about the profitability of your business and the money in the bank at the end of a "profitable" year.
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Popular Highlights in this book
When less money is available to run your business, you will find ways to get the same or better results with less. By taking your profit first, you will be forced to think smarter and innovate more.Highlighted by 7,067 Kindle readers- Eliminating unnecessary expenses will bring more health to your business than you can ever imagine.Highlighted by 6,303 Kindle readers
- To grow the biggest and the fastest, you need to be the best at one thing you do. And to become the best at something, you need to first determine what you are best at and do it a whole lot better. To get there, you take your profit first and the answers to being the best at something will reveal themselves.Highlighted by 5,759 Kindle readers
- Primacy Effect. The principle is this: We place additional significance on whatever we encounter first.Highlighted by 4,357 Kindle readers
From the Publisher
THREE STEPS TO PERMANENT PROFITABILITY
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CHANNEL BEHAVIORMost entrepreneurs run their business via “login and see what you’ve got - bank balance accounting.” If you do that, too... congratulations! Profit First was made for you. Profit First is a cash management system that works with your bank accounts. The do-it-yourself process pre-allocates money to its intended use before you spend it. When you log into your bank, you will know what money is available for what purpose. |
REMOVE TEMPTATIONJust like the 401k has been the greatest personal savings mechanism in US history, Profit First leverages the same “pay yourself first” principle. First, your business will deduct its profit and transfer the money away from your primary bank to prevent the business from “borrowing from it.” With the temptation to run your business from its profits removed, you will automatically operate your business in a fiscally sound manner. |
REWARD QUARTERLYAs profit accumulates, the owner(s) of the business will take a quarterly profit distribution. The profits are not “plowed back” or “reinvested” into the business - or they should be reclassified as expenses. Instead, the profits are used to reward the owner(s). Some businesses have debt, of course. Using the Profit First system, portions of profit distributions can be used to pay off chunks of debt, but some must remain to reward the owner(s). With Profit First, you win. Every quarter. |
ABOUT MIKE MICHALOWICZ
After building and selling two multi-million dollar businesses, Mike Michalowicz (pronounced mi-‘kal-o-wits) started his third company and... lost his entire fortune. Then he started all over again, driven to find better ways to grow healthy, strong companies. Mike has devoted his life to the research and delivery of innovative entrepreneurial strategies to his readers.
Mike is the creator of Profit First, which is used by over one million companies across the globe to drive permanent profit. He is also the creator of Clockwork (small business systems), Fix This Next (small business strategy), Get Different (small business marketing), The Pumpkin Plan (small business growth), and All In (small business teams).
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| Fix This Next | Get Different | Clockwork | The Pumpkin Plan | All In | |
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| Price | $14.99 | $26.00 | $18.59 | $19.69 | $20.99 |
| YOUR GUIDE TO ENTREPRENEURIAL SUCCESS | I want to do the RIGHT things! | I want to MARKET better than ever! | I want to get my TIME back! | I want to GROW fast and strong! | I want to LEAD an unstoppable team! |
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CPA who highly recommends this book!
I’m a CPA and everyone I know who has read and implemented this book have found less financial stress. I recommend this book to everyone, even if you don’t own a business. I even ordered one for each of my adult kids.
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Achieve Financial Peace: The Power of Prioritizing Profit
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Reviewed in Canada on September 8, 2024
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