What is Profit First?
Profit First flips traditional accounting on its head and may even piss off a few GAAP apologists. It has a cult like following associated with it, yet even with the following it's still a relatively unknown book. I didn't come across it until the concept of managing your finances based on anticipated profit came up in conversation with a CEO I coach. I then went digging into this Rich Dad, Poor Dad type wizardy of business cash management to learn more.
Here's a book description:
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.
Why did I read it?
Two reasons:
- Because I, like most entrepreneurs, have spent money in stupid ways and thought it was really cool to brag about revenue while I search for cash under my couch cushions. Okay, that may be dramatic, but it's felt that way. I've learned the secret to entrepreneurship is sell like your hair's on fire then refine your operations to support it at all costs, except at the cost of your profit.
- Because frameworks help. It's one thing to say it, it's another thing to have a tool to help you, and this provided that.
Why I loved it?
Many business owners I chat with believe they are more profitable than they are. They're killing themselves to run their business without reaping the rewards. It's like when Microsoft Word deletes the 15 page paper you killed yourself to write and you're left with a sweat stained keyboard and a pulsing cursor on a blank page. It's heartbreaking and I want to stop it from happening as a coach.
The book is a fun, casual read that breaks through the mystique of finance. It challenges the ways things are done with a practical approach that makes more business owners see the rewards of their effort.
What are my favorite highlights?
(If you have the book in kindle the location links will take you to it.)
- Here’s the deal, my friend: Profit is not an event. Profit is not something that happens at year-end or at the end of your five-year plan or someday. Profit isn’t even something that waits until tomorrow. Profit must happen now and always. Profit must be baked into your business. Every day, every transaction, every moment. Profit is not an event. Profit is a habit.
- Whether your business is simply not as profitable as you would like it to be or is in full cardiac arrest, you should be willing to keep your eyes wide open.
- Often the most underutilized employee in an overstaffed company is you, the owner.
- The ultimate in innovation is to extract more benefit from less-expensive resources.
- We can trace almost every major change to a pivotal moment when the pain of staying a certain way is greater than the effort to make awareness of it go away.
- Too many entrepreneurs believe that you can have only one or the other: profit or growth. It sickens me that so many entrepreneurs think it is a trade-off.
What else did I highlight in the book?
Introduction
The SBA defines a small business as a company that generates $25 million or less in annual revenue. (Location 194)
When you look at the full size of our global entrepreneurial family, you’ll see that the number of small businesses soars past 125 million.* (Location 197)
According to a Babson College report, “A lack of profitability is consistently the major reason cited for business discontinuation.”* (Location 207)
Chapter 1: Your Business is an Out-of-control Cash-eating Monster
Money problems occur when one of two things happen: Sales slow down. The problem here is obvious when you operate check-to-check and sales slow down: when your one big client goes out of business, or that big deal you were banking on falls through, you won’t have enough to cover expenses. Sales speed up. (Location 441)
Here’s the deal, my friend: Profit is not an event. Profit is not something that happens at year-end or at the end of your five-year plan or someday. Profit isn’t even something that waits until tomorrow. Profit must happen now and always. Profit must be baked into your business. Every day, every transaction, every moment. Profit is not an event. Profit is a habit. (Location 481)
The lemming mentality of growing first with the hope of finding profit in the process, is so bass ackward it drives me nuts. (Location 486)
When you focus on profit first, you inevitably figure out how to make a profit consistently. Profitability. Stability. Sanity. Forevermore. (Location 503)
The Survival Trap promises fast money, but when we’re caught in it, we, like Ernie, rarely think about the massive cost of opportunity; and most of the time, we can’t discern profitable income from debt-generating income. (Location 560)
A secondary flaw is this: GAAP teaches us to focus on sales and expenses first. (Location 617)
Just ask Enron—they were able to post profits as they were going bankrupt. (Location 625)
Accountants define profit differently than entrepreneurs. They point to a fictitious number at the bottom of an accounting report. Our definition of profit is simple: cash in the bank. Cold. Hard. Cash. For us. (Location 644)
As Charles Duhigg explains in The Power of Habit, it is human nature to revert to established habits in times of stress. (Location 679)
There is only one way to fix your financials: by facing your financials. (Location 704)
Chapter 2: The Core Principals of Profit First
- Parkinson’s Law: Why Your Business Is Like a Tube of Toothpaste (Location 802)
In 1955, a modern philosopher named C. Northcote Parkinson came up with the counterintuitive Parkinson’s Law: that the demand for something expands to match its supply. In economics, this is called induced demand—it’s why expanding roads to reduce traffic congestion never works in the long term because more drivers always show up in their cars to fill those extra lanes. (Location 806)
You need to intentionally make less toothpaste (money) available to brush your teeth (to operate your business). (Location 829)
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. (Location 832)
- The Primacy Effect: Why the First Part of Profit First Matters (Location 834)
Primacy Effect. The principle is this: We place additional significance on whatever we encounter first. (Location 836)
Remove Temptation: Once You Take Your Profit First, Put It Away (Location 852)
Enforce a Rhythm (Location 861)
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. (Location 895)
THE NEW ACCOUNTING FORMULA Now you know the psychology behind how you work. The next step is to put a system around the normal you. And we start with a simple new Profit First formula: Sales − Profit = Expenses (Location 897)
Eliminating unnecessary expenses will bring more health to your business than you can ever imagine. (Location 913)
After setting up this new checking account at your bank, nickname the account PROFIT, and from this moment forward from any deposit you put into your normal checking account, transfer 1 percent of that deposit into your PROFIT account. (Location 944)
Chapter 3: Setting up Profit First for Your Business
Here are the five checking accounts you need to set up: INCOME, PROFIT, OWNER’S COMP, TAX, OPEX (Location 1026)
Here’s how to proceed: if you like your current bank, tell them that their requirements for a “minimum balance” and “transfer fees” and all those rules they have don’t work for you. Ask them to waive the minimum balance requirement and other fees. Yes, you can ask that. Your bank will either comply with your request, or they won’t. If they do, kudos to you. If they don’t, move on to a new bank. (Location 1112)
You have the ability to change banks, too. Their job is to serve you. Just like you wouldn’t risk botulism and accept undercooked chicken from your local restaurant, why should you accept a poisoned relationship with a bank? (Location 1106)
TAKE ACTION: GET YOUR BUSINESS PROFIT-READY
Step 1: Set up the five foundational accounts: an INCOME account, a PROFIT account, an OWNER’S COMP account, a TAX account, and an OPEX account. (Location 1119)
Keep the primary checking account you already have as your OPEX Account, and set up the remaining accounts: INCOME, PROFIT, OWNER’S COMP, and TAX. For simplicity’s sake, set them all up as checking accounts. (Location 1122)
Step 2: Set up two more external savings accounts with a bank other than the bank you use for daily operations. One account will be your no-temptation PROFIT HOLD account. The second will be your no-temptation TAX HOLD account. (Location 1126)
Chapter 4: Assessing the Health of Your Business
Whether your business is simply not as profitable as you would like it to be or is in full cardiac arrest, you should be willing to keep your eyes wide open. (Location 1172)
If you are wondering how Profit First addresses depreciation or accounts receivable, you are still thinking funny money. We are only going to measure actual cash transactions. Money in. Money out. Real money. Period. (Location 1178)
Before you start the Instant Assessment, get your P&L from your last full year in business. Get the tax returns for each owner in the business for the tax period for that year. Get your balance sheet for the year-end of that year. Your accounting software (if you use one) can spit this stuff out easily; everything but your tax returns. (Location 1182)
(Subcontractors are people who work for you on a project basis, but have the ability to work autonomously and have the ability to work for others. You don’t pay them on payroll; you pay them their project fee, commission, or hourly rate, and they handle their taxes, benefits, etc., themselves.) (Location 1203)
The real estate agency that does $5,000,000 in annual revenue and has a couple dozen agents (subcontractors) taking $4,000,000 in commissions is really a $1,000,000 business that manages real estate agents making $4,000,000, not a $5,000,000 business. The $3,000,000 a year staffing firm that bills out subcontractors to do work, and pays those subs $2,500,000, is really a $500,000 business. The architectural firm that bills out $2,000,000 in annual fees and has an in-house staff that does practically all the work has Real Revenue of $2,000,000 a year. (Location 1220)
I call these percentages TAPs (Target Allocation Percentages), the percentage of each deposit that will be allocated to different elements of our business. TAPs are not your starting point; TAPs are the targets you are moving toward. (Location 1264)
Focus on increasing profits because, for so many businesses, the growth from $1,000,000 to $5,000,000 is the hardest. You want a little reserve. (Location 1304)
Chapter 5: Allocation Percentages
CURRENT ALLOCATION PERCENTAGES (CAPS) (Location 1437)
The key to successful Profit First implementation lies in stringing together a series of many small steps in a repeating pattern. So take it easy. (Location 1447)
YOUR PROFIT TARGET ALLOCATION PERCENTAGE (PROFIT TAP) (Location 1451)
Do a quick Internet search using the term financial market overview, and you will find dozens of Web sites that report the financials for public companies. (Location 1457)
(Tip: My preference is Marketwatch.com for these reports, because the site is easy to navigate. You might also try Yahoo! Finance and Google Finance.) (Location 1459)
(If your income dried up, you would stop contributing to your PROFIT account and TAX account and stop profit distributions to owners.) (Location 1480)
If your sales were to stop completely, with not a single deposit coming in, here’s a good longevity rule of thumb: 5 percent profit allocation = 3 weeks of operating cash. 12 percent profit allocation = 2 months of operating cash. 24 percent profit allocation = 5 months of operating cash. (Location 1483)
The only way to keep big margins is to milk them for all they’re worth when you have them and keep innovating to find new ways to bump up profitability. (Location 1496)
OWNER’S COMP TAP (Location 1498)
Owner’s Comp is the amount you and the other equity owners take in pay for the work you do. (Location 1501)
Owner’s Comp is the money we reserve for you and any other owner operators of the business to get paid for the work you do for the company. (Location 1503)
(Equity members of your company who do not work in the business just get a profit distribution.) (Location 1503)
Your salary should be on a par with the going rate for the work you do, in other words—the salary you would have to pay your replacement. (Location 1504)
Determine your salary based on what you are doing 80 percent of the time, and what you would reasonably pay employees to do those jobs. (Location 1511)
make the percentage one and a quarter times the amount you determine for your salaries, so you can adjust for revenue fluctuations. Say you work with four equity owners in a business with a revenue of $1,000,000, who draw a salary of $50,000 each, you need to set your Owner’s Comp TAP to at least 25 percent. (Location 1514)
You are your best, most important employee. We must take care of you. (Location 1524)
Don’t Underpay Your Most Important Employee (Location 1529)
In the early days of a company, when annual revenues are below $250,000, you are not only the most important employee; you are likely the only employee. If your annual revenue is under $500,000 and you have an employee or two, you are still the key employee. (Location 1553)
Say it again, once more with feeling: my business serves me; I do not serve my business. Paying yourself next to nothing for hard work is servitude. Always start with CAPs—where you are now—and increase by 1 percent each quarter.* (Location 1559)
it is likely you will always work in your business. Because even if you are a master of building systems and spend 80 percent of your time in that magic zone, you’ll still spend roughly 20 percent of your time handling the big sales. Almost every entrepreneur-to-CEO is in charge of the big sale. (Location 1566)
Your martyr syndrome is not doing anyone any favors; making yourself the sacrificial lamb does not promote efficiency; it hinders it. (Location 1572)
YOUR TAX TAP (Location 1574)
The Tax plate, so we are clear, is designed to pay the direct Tax liabilities of the business and (this is the big one), the personal income taxes of the owners. Let me say that again because this often gets missed: your company (assuming you own it) will reserve your personal income tax liability for you, and then pay it. (Location 1587)
This system also works if you have taxes drawn from your paycheck (maybe you don’t take distributions as you would from an LLC, but take a paycheck from an S-Corp or a C-Corp), then the company will reimburse you for your taxes. (Location 1592)
All taxes (including, scratch that, especially yours) are paid by your business, not you. Got it? Good. (Location 1593)
A Little Simple Math (Location 1612)
Chapter 6: Putting Profit First into Motion
- Set Up Your Accounts. Before we begin, you better have already set up your foundational five accounts at your primary bank (INCOME, PROFIT, OWNER’S COMP, TAX, and OPEX) and the two accounts at your new no-temptation bank (PROFIT HOLD and TAX HOLD). (Location 1715)
if you are nicknaming your PROFIT account, and the CAP is 8 percent and the TAP is 15 percent, nickname the account “PROFIT 8% (TAP 15%).” This allows you to quickly identify which money is going where currently, and the ultimate allocation percentage you are trying to achieve. (Location 1722)
CAPs—Start Out Easy (Location 1731)
Even if our targets are much higher, we start with what we’ve got, plus 1 percent for Profit, Owner’s Comp, and Tax. We then reduce the Operating Expenses by the cumulative of the percentage adjustments we made to the other three accounts. (Location 1747)
The goal is to set up these automatic allocations immediately, and then adjust the percentages each quarter until we are aligned with our target distribution percentages. Take small easy steps and you will gain powerful momentum. (Location 1750)
Don’t confuse the profit distribution with Owner’s Comp, which is pay for working in the business. (Location 1971)
On the first day of each new quarter (or the first business day afterward), you will take a profit distribution. Remember, the PROFIT account serves a few purposes: Monetary reward for the equity owners of the business. A metric to measure growth. Cash reserve for emergencies. (Location 1979)
The key is this: the profit distribution can never go back to the company. You can’t use fancy terms like reinvest, plowback, or profit retention. No term you use will cover up the fact that you are stealing from Peter to pay Paul. Your business needs to run off the money it generates in its operating expenses. (Location 2001)
Profit is intended to be your reward for having the guts to invest in your own business. Use it for whatever gives you personal joy. (Location 2008)
If you are adjusting and tweaking your percentages conservatively, I suggest that you account for three percentage points each quarter. (Location 2026)
Chapter 7: Destroy Your Debt
Pete explained that his bank had called his line. If you aren’t familiar with this experience, here’s how it works: you get a revolving line of credit from the bank. It’s a bank account that functions like a credit card, in that you can draw as much money from it as you want, up to your credit limit, and pay it back over time. As long as you pay your interest and make your minimum percentage payment every month, you’re good. Except there’s this pesky little rule in the fine print that says the bank can call back the entire loan at any time. (Location 2096)
We can trace almost every major change to a pivotal moment when the pain of staying a certain way is greater than the effort to make awareness of it go away. (Location 2113)
“The solution to debt is this simple: If you want to get out of debt, you must get more enjoyment out of saving your money than you do spending your money.” (Location 2144)
We entrepreneurs are an optimistic bunch. We have to be. It takes a lot of courage, and more than one pair of rose-colored glasses, to do what we do. That optimism serves us until, well, it doesn’t. (Location 2168)
The trap we fall into is believing our most recent best month is our new normal. Then we start running the business according to that “normal.” (Location 2169)
To prevent shortsighted behavior but stay optimistic, always look at your twelve-month rolling average income (and related numbers). (Location 2172)
When you base decisions on your best revenue month, you will run out of cash—quickly. (Location 2175)
I had a call with Andrew Hill and Gary Nunn, the founders of Solutions Tax & Bookkeeping in Frisco, Texas, about the spending habits of entrepreneurs, and they told me an accountant’s inside joke. Whenever a client approaches them about a windfall of new money, the client will inevitably say, “I don’t even know how I would ever spend all this money.” Each time, Andrew and Gary have the same response: “Oh, you’ll find a way. And you’ll probably figure it out within the next month.” (Location 2177)
Percentages are based on real results—the cash in the bank. No games, no hypotheticals, no “We’ll make it up next month.” Projections are an opinion. Cash is a fact. (Location 2186)
So how do you predict the owner salary your company will likely support? Look at your slowest three months and average them out. That is the lowest your revenue will likely ever go. (Location 2193)
You want to cut the fat out of your business, the stuff that is not generating or supporting income for your company. But you don’t want to cut out the muscle, the stuff that you absolutely must do to deliver your product or service. (Location 2206)
Build a Leaner Team (Location 2239)
If your company is racking up debt, it is all too often because labor cost is too high. The problem with cutting labor costs is, our minds quickly come to defend and justify why people should stay: I own the company, I can’t do the work; I need to direct my team to do the work. Plus, they need a job (which is true); they are integral to the company (probably also true); the company will tank without them (super unlikely); and if I get rid of them, I won’t have people to do the work (hardly ever true). (Location 2243)
Often the most underutilized employee in an overstaffed company is you, the owner. (Location 2250)
The next day we drove by the same Home Depot. Paul looked at the sign, grinned from ear to ear, then looked away and drove on. I said, “Don’t we need the electrical supplies?” “Absolutely we do. Just one more day.” (Location 2302)
The new definition of success is not about the most revenue, employees, and office space but the most profit, generated through the fewest employees and with the least expensive office space. (Location 2334)
IF YOU OWE THE BANK A MILLION DOLLARS
There is a saying in the banking industry: “If you owe the bank a thousand dollars, it’s your problem. If you owe the bank a million dollars, it’s their problem.” (Location 2338)
The ultimate in innovation is to extract more benefit from less-expensive resources. (Location 2372)
For every expense, Jesse asks himself whether it fits with who they are as a brand—entertainment over baseball—and whether he absolutely needs it. If he does need it, he finds a way to trade for it, or he gets it at a deep discount. (Location 2373)
Chapter 8: Find Money Within Your Business
IT’S SMARTER TO DIG A WELL THAN MAKE IT RAIN (Location 2434)
Why should you care about Idaho and its underground lakes? Because 95 percent of your company’s profitability is contingent on what goes on beneath the surface (after the sales), not what happens in the sky (the sales themselves). And it is what’s going on “underground” that will help you “find” gobs of money. (Location 2449)
THE PROFIT SQUEEZE (Location 2451)
“Is there such a thing as too much profit? Is there a ceiling?” “You always want to expand profit,” Greg replied. “In fact, you must, because there are outside forces that will continually take your profitability away—your competition. As you find ways to increase profitability, or even if you don’t, your competition is doing the same. Everyone is trying to become more profitable. And as businesses become more profitable, the competitive pressure sets in and prices drop to attract more customers. “When you figure out a big leap in profitability, the competition will sniff it out, and it is just a matter of time before they do the same thing. Then someone drops prices to get more clients, and everyone else, including you, has to do the same to stay in business. This is how profits get squeezed.” (Location 2458)
when competition sets in and prices drop, your profit allocation will feel the squeeze, which means it’s time to innovate again. (Location 2476)
Remember, Parkinson’s Law is your ally. A full tube of toothpaste can last four weeks, and so can a tube that is nearly empty. It just requires the balance of frugality (using conservatively) and innovation (twisting, turning, and squeezing your ideas) to pull off what no else even considered before. (Location 2482)
I want you to set a massive goal for yourself. Look at every aspect of your business and determine how to get two times the results with half the effort. That’s a biggie, so I will say it again: How do you get two times the results with half the effort? (Location 2496)
Remember Mr. Innovator? He asked, “How can I cut costs by one third and still service the same amount of customers?” Split the truck. Split the truck. Split the truck. (Location 2526)
Did you know that United Parcel Service (UPS) trucks almost always take right turns? In 2006, UPS dared to ask the efficiency question about fuel costs. They discovered that the less time UPS drivers spent in left turn lanes, the less fuel they burned waiting at lights and to cross traffic, and the less idle time there was for each driver. UPS is now experiencing a savings of $6 million a year from the change. (Location 2528)
“How can I get two times the results with half the effort?” (Location 2539)
Letting go of clients who suck us dry and eat up our profit margins is a way of making space for clients we can serve exceptionally well by doing what we do best and with fewer resources. It is all about improving not only the top line but the bottom line, too. (Location 2564)
A study facilitated by the Chicago-based growth-consulting firm Strategex analyzed the revenue, cost, and profit breakdown for a thousand companies. What they found was nothing short of a “duh” moment, as in the “Duh, I already knew this, but I still haven’t done anything about it in my own business because I’m a glutton for punishment” type of duh. (Location 2566)
Strategex found that the top quartile generated 89 percent of the total revenue, while the lowest quartile only accounted for a meager 1 percent of total revenue. (Location 2571)
You will become superefficient, because you now serve very few but consistent needs, rather than an excessive array of varying needs. You will love working with your clones, which means you will naturally and automatically provide better service. We cater to the people we care about. Marketing will become automatic. Birds of a feather flock together (for real) and that means your best clients hang out with other business leaders who have the “best client” qualities you’re looking for. Your best clients are awesome, remember? You love them and they love you, and that means they will talk you up every chance they get. (Location 2601)
As the bills mount, the pressure grows to sell more and more; and you end up working on projects in which you have limited experience and sometimes little interest. (Location 2642)
Shawn has achieved efficiency, and recognizes it as the secret sauce of profitability—getting more of the same things done with better and better results, using fewer and fewer resources. (Location 2654)
Chapter 9: Profit First - Advanced Techniques
You already have your five foundational Profit First accounts open—INCOME, PROFIT, TAX, OWNER’S COMP and OPEX—plus your two no-temptation accounts that don’t get touched, the PROFIT HOLD and TAX HOLD accounts in a separate bank. (Location 2699)
Every business should have a three-month reserve, meaning that, if not a single sale came in, all costs could still be covered for three months (a quarter). (Location 2706)
Sales Tax Account If your business collects sales tax, every single stinkin’ penny of the sales tax you collect is immediately allocated to this account. (Location 2777)
Sales tax isn’t even legally your money; you are just acting as a collection agent for the government, so never, ever treat that money as income. (Location 2780)
WRITE DOWN THE PROCESS (Location 2830)
Create a single-page document that defines the function of each account. Explain what purpose each account serves, and the process you will follow. For example, document that on the tenth and twenty-fifth of the month, all the money in your INCOME account is distributed to the PROFIT, OWNER’S COMP, TAX, and OPEX accounts based on the respective percentages. (Location 2831)
You get what you focus on, so stop focusing on expenses. Focus on profit, and the expenses will be taken care of by default. Screw the monthly nut. Instead, focus on your Required Income for Allocation (RIFA). This is the money you need to deposit by the tenth and again on the twenty-fifth to have a healthy business, to pay the salary you want from your business, and to take the profits you deserve. Period. (Location 2843)
Take your monthly required personal income and divide it by two because you are getting paid twice a month. Then divide that number by the percentage being allocated in Owner’s Comp. Using the (made-up) amounts on Figure 6, I would divide $5,000 by 0.31. The result is just over $16,000 in business income, which means that by the tenth and twenty-fifth of every month, I need to collect and deposit around $16,000 into the INCOME account to cover it. (Location 2848)
There are twenty-four allocations per year. So to annualize it, multiply that $16,000 by twenty-four and you will have your annual business income requirement, which in this case is $384,000. For you to take $5,000 every pay period, you need to generate $384,000 (Location 2851)
WHEN YOU HAVE MORE THAN ONE BUSINESS OWNER (Location 2858)
If you have a partner or multiple partners who are also getting paid, you need to add up the total income requirements for the owners. (Location 2859)
RAISING CAPITAL (Location 2872)
If you do raise money, you need to do a quick advanced technique with Profit First. You guessed it: set up another account. Call it OUTSIDE CAPITAL. All the money goes there, and it is used on the schedule and as specified with the use of funds you agreed to with the investor. (Location 2877)
HOW TO DETERMINE WHETHER YOU CAN AFFORD A NEW EMPLOYEE (Location 2885)
There is a really simple formula for determining whether you can afford a new hire—or if your business is currently understaffed or overstaffed. For each full-time employee, your company should generate Real Revenue of $150,000 to $250,000 (ideally more, but this is the minimum). (Location 2886)
According to Greg Crabtree, the author of Simple Numbers, Straight Talk, Big Profits, your Real Revenue must be two and a half times the total labor cost if you’re running a tech business. (Location 2898)
If, on the other hand, you are in a cheap-labor field, such as the fast-food restaurant example I used above, your Real Revenue must be four times your total labor cost. (Location 2900)
Chapter 10: The Profit First Life
The ultimate goal of the Profit First lifestyle is financial freedom, which I define as doing what you choose to do whenever you choose to do it. (Location 2996)
Chapter 11: How to Keep it from Falling Apart
You identify the elements that support the profit—in this case, great employees who stay with you for the long haul—commit to it, and jettison the things that don’t. (Location 3274)
Too many entrepreneurs believe that you can have only one or the other: profit or growth. It sickens me that so many entrepreneurs think it is a trade-off. (Location 3282)
When profit comes first, your business will automatically show you the path to growth. (Location 3301)
Maybe the decree by Mark Cuban, the wildly successful entrepreneur and shark on Shark Tank, will set the record straight. In his February 2009 blog post titled “The Mark Cuban Stimulus Plan,” he outlines what it takes for businesses to thrive and for him to invest money in their growth; my favorite bullets are 1. and 4.: “1. It can be an existing business or a start-up. “4. It must be profitable within ninety days.” (Location 3303)
Money is made by efficiency—invest in it. If a purchase will bring up your bottom line and create significant efficiency, find ways to cut costs elsewhere, and consider different or discounted equipment (or resources, or services) rather than sacrifice efficiency for what you think are savings. (Location 3318)
MISTAKE #5: “PLOWING BACK” AND “REINVESTING” (Location 3320)
We use fancy terms to justify taking money out of our different allocation accounts to cover expenses. Two that are used most often are plowback and reinvest, which are really just other ways to say borrow. (Location 3321)
Profit is a reward (in the form of a cash distribution) for the equity owners of the business, and is above and beyond their pay from working in the business (Owner’s Comp). (Location 3370)
If you are having trouble getting your bookkeeper or accountant on board with Profit First, I humbly ask you to consider working with a PFP. You can find one at ProfitFirstProfessionals.com. (Location 3391)
I’ll leave you with a quote from the great athlete Sir Roger Bannister, who busted through the myth that the four-minute mile could not be beaten: “The man who can drive himself further once the effort gets painful is the man who will win.” (Location 3398)