Profit First by Mike Michalowicz

This is the first of my book reviews for 2019. It is by no means the first book that I’ve read, just the first one that I’ve managed to write the review for.

The book is Profit First, by Mike Michalowicz. I listened to the audio version that the author reads, and in listening to it, I got the impression that he wasn’t just reading the book, but expounding on his thoughts as he went through. Mike really brings the book to life.

Mike’s thesis is that money in a business is subject to the Pareto Principle. That is, the expenses of a business will expand to match the revenue, so without a plan for profit a business will not be profitable. Sadly, anecdotal evidence from my experience finds this to be true.

So what does Mike propose to do instead? In a nutshell, he suggests putting aside money twice a month into a designated profit account that is only to be used to pay profit to the business owners. He also proposes a series of other bank accounts (for tax payments and regular expenditures) as well, so cash is provided for these expenses before they come up, rather than having to scramble when the bills come in.

Whilst his specific strategy would have to be modified to match the Australian taxation regime, I’m comfortable that he has the direction correct, and will consider how to bring some of his strategies into my business, and help clients also do the same.

So what did I learn?

  • Without a plan a business will probably never have a profit (and if it is profitable, will have a smaller profit in the absence of a plan for profit
  • Business expense expand to match revenue, generally at the top of the revenue cycle, and cannot be brought down easily, so when a business has a bad month, cashflow crisis is inevitable.
  • By strategically restricting cash available to the business owner to pay expenses, the business owner will become more innovative and get the same or better results using less financial resources.

What am I going to do about what I’ve learned?

  • Have a good look at the expenses in my business to cut out what I really don’t need to be spending and push myself to find cheaper solutions to some of the things that the business needs
  • Do the same thing with my personal finances
  • Set aside money as profit both within my business and in my personal finances
  • Develop a system that can help by business thrive, then identify clients so they may also thrive as well.

Mike also has a bunch of resources on his website (https://www.mikemichalowicz.com) and is the author of a few other interesting looking books. I’ve added his more recent book Surge to my reading list and I’ll give you an update on things that I’ve learnt from reading that.