In his book Profit First, Mike Michalowicz outlined a process for saving profits and reducing debt. He uses a system of bank accounts with specific formulas to hold money for taxes, compensation, profit, and more. Using his process, you increase funds allocated to these accounts over time while focusing on reducing expenses.
Profit First is 224 pages long and spread over an introduction, 11 chapters, and 3 appendices. The chapters include:
- Your business is an out-of-control cash-eating monster
- The core principle of profit first
- Setting up profit first for your business
- Assessing the health of your business
- Allocation percentages
- Putting profit first into motion
- Destroy your debt
- Find money within your business
- Profit first – Advanced techniques
- The profit first life
- How to keep it from falling apart
Michalowicz set the case for his strategy in the first two chapters and I was sold. He pointed out that the formula Income – Expenses = Profits does not work. He instead proposed the formula Income – Profits = Expenses. He advocated that we should be taking our profits before expenses. He recognized, in many cases, taking a large profit was not in the best interest of the company. He instead recommended taking a small profit at first and systematically increasing it as expenses were reduced.
His system is about maintaining multiple accounts and allocating funds to those accounts twice a month. The great thing about this system is that it can be applied to your personal accounts. I have already created my additional holding accounts and I am excited to see how this unfolds. I am very positive about the potential.
Michalowicz not only outlined his system but also provided guidance for reducing expenses and debt. Again, this was advice I took to heart and started reeling in unnecessary expenditures. Another area he highlighted over and over again in his book was the use of systems. As I have come to find out, when you implement systems, things seem to work out for the better.
Throughout the book, Michalowicz used personal examples and from those who implemented his system. While the book could have been written in a quarter of the pages, the examples help to convince the reader how and why this system works.
I am convinced this process will improve my personal finances. I believe it will also help businesses and individuals become more profitable. As I said, run, don’t walk to get a copy of Profit First.
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