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Welcome to Profit First Nation, the podcast that helps you achieve permanent profitability in your business by taking action to implement Profit First right. Hosted by Danielle Mulvey, a Profit First expert, and Mike Michalowicz, the author of Profit First, this podcast is for the top 17% of entrepreneurs who have cash in the bank to correlate with their profitability.
On the podcast, we dive into advanced Profit First strategies by sharing the honest and authentic ups and downs of being a business owner. Each episode provides information for entrepreneurs focused on taking the right steps and seeking appropriate advice from professionals in accounting, legal, tax, or other relevant areas. You’ll also hear transformational stories from business owners who have turned their businesses from cash eating monsters to money making machines with cash in the bank to correlate to their profitability by implementing the Profit First System.
With a focus on intelligent entrepreneurship, Profit First Nation guides you on how to take ownership of your finances and leverage Profit First as a DIY cash management system to make your business permanently profitable.
If you're a fan of Profit First and Mike Michalowicz, this is the podcast for you. Join a in on our community of successful entrepreneurs driven to be permanently profitable, with a grit and growth mindset that lets no obstacle stand in the way in pursuit of the three Ps: passion, profit, and play.
https://www.profitfirstnation.com
ABOUT THE HOSTS
Danielle Mulvey:
Danielle Mulvey is a former flight attendant-turned entrepreneur and the owner of multiple businesses doing $50-million in annual revenue. She is one of the exclusive, select group of Mastery-Certified Profit First Professionals in the world, and the go-to “HOW TO IMPLEMENT” workshop facilitator for Profit First and WSJ Journal Best Selling Author Mike Michalowicz following his keynote speeches. Danielle is currently running multiple businesses from start-ups to mature businesses with 10-year plus track records and revenues ranging from $1M to $40-million in annual revenues and is a certified numbers geek about Profit First, leveraging the DIY cash management system for small business to achieve maximum profitability. She has the ability to personally guide business owners to achieve maximum profitability in their business based on her 25-years experience of being an entrepreneur who has been there and done that.
Additionally, Danielle authored the book The Rapid Read™ Guide to The 5-Star Employee Rating System™ and is currently collaborating with Wall Street Journal best-selling author Mike Michalowicz on his new book, to be released in Q1 2024, titled ALL IN: How Great Leaders Build Unstoppable Teams.
https://www.daniellemulvey.com
linkedin.com/in/danielle-mulvey-66a315
theallincompany.com
profitfirstnation.com
Mike Michalowicz:
Mike Michalowicz is an entrepreneur and New York Times and Wall Strett Journal best-selling author of Profit First, The Pumpkin Plan, SURGE, Toilet Paper Entrepreneur, Clockwork, Fix This Next, and Get Different. BusinessWeek called Toilet Paper Entrepreneur a business cult classic. His books have been translated into 10 languages and Mike has had the privilege to speak on stages all over the world because of his passion to connect with entrepreneurs.
As the founder of Profit First Professionals, he empowers accountants, bookkeepers, and business coaches with the tools and techniques to maximize client profitability, allowing them to uplevel from being one of the 83% of small businesses operating check-to-check and struggling to be profitabably to becoming one of the 17% of thriving and highly valuable businesses with cash in the bank to correlate to profitability. Mike also co-founded the business growth consultancy, Provendus Group, and has successfully founded, built, and sold two technology service-based companies. He is passionate about sharing his experiences and advice with entrepreneurs and sits on formal and informal advisory boards while maintaining relationships with angel and early-stage investors.
linkedin.com/in/mikemichalowicz
MikeMichalowicz.com
ProfitFirstProfessionals.com
mikemichalowicz.com/books/
MikeMichalowicz
Danielle: Welcome to another great
episode of Profit First Nation.
I'm really excited today to have
Laura Magu, the owner of Rev
Bistro in Lafayette, California.
Join us today to share
her profit first journey.
Welcome to the podcast, Laura.
Laura: Thank you Danielle.
Thank you so much for having me.
I'm really excited to chat with you today.
Danielle: So, we're gonna go
back like about nine, 10 years.
You read Profit First and then you had the
fortune of seeing Mike at a conference.
and I've traveled with Mike on speaking
engagements, and he does the keynote
and I do the workshop afterwards and
it is amazing how many people come
up to him and fan out, and say, "Oh
my gosh, I've read your book twice.
I've listened to it on audio three times."
And he is like, well, great.
That's awesome.
How's it working out for you?
And they're like, well, I
haven't implemented it yet.
And I wasn't there with you,
but you were kind of stuck.
You read the book and you thought
what after reading the book?
Laura: So I discovered him
through, Dave Ramsey through Entree
Leadership, and it was one of
the books and had just come out.
And a little bit before that, my
husband and I opened the restaurant,
never owning a business before.
And so I was like, oh, I
have a lot of learning to do.
I gotta figure out how to be
a successful business owner.
So I found profit first and it made sense.
And then I decided, okay, I'm gonna
go to a breakout session, and it just.
It was a little bit confusing for me.
How can I have five different
accounts, six different accounts,
and what does that look like?
And a restaurant is structured
different than the general business
that his book talked about.
That was my hesitation.
I just felt a little bit overwhelmed.
And so what I did after talking with
him, I just opened up two other accounts.
I opened up a sales tax
account in California.
We're basically this pass through
entity where people pay sales tax
and then we pay it to the state.
And then I opened up a labor account,
because labor is, our biggest expense.
and just having those two accounts
and then setting up a rhythm
of, Moving money every Monday.
but yeah, so that was my
first touch of Profit First
Danielle: and then, profit First for
Restaurants came out by Kasey Anton.
Laura: It did.
It did.
I was like, this is
the book that I needed.
And she really gets into the
nitty gritty of breaking it down
specifically for restaurants.
And I know that other industries have
their industry books and I feel like.
I had been maybe in the back
of Kasey's mind for years
going, please write this book.
Write this book.
so yeah.
And then we started working with
Kasey Anton's team two years ago.
Danielle: So that's Kasey Anton,
with Spark Business Consulting,
the author of Profit First for
Restaurants, and you're exactly right.
So Profit First is like
basic profit first, you know?
It gives you the basic foundations.
I mean, let's be honest, Laura, maybe
do you kind of regret not opening up
that profit account along with those
first two accounts so you could just
have started allocating a little
bit to profit when you started?
Laura: Yeah.
Yes.
Getting your tax statements at
the end of the year and being told
that you had X amount of dollars in
profit and going, oh my gosh, I did.
Where is it?
so those distributions, they're wonderful.
Yeah.
We would take some profit
here and there, but then.
What I thought we took, versus the
end of the year statements, I'm
like, we didn't take that much money.
the government says we did.
So, yeah.
Yeah,
Danielle: because that's
the beauty of profit first.
You actually see where
the money's going Exactly.
And how it's being spent.
And, that having the profit in that
profit account to correlate to your
profitability is pretty exciting, but
you're also allocating to the tax account.
So remember, for the audience.
I know you know this, that
profit owners pay and tax are
three servings for the owner.
and you were probably taking money out
of the business that you thought was
profit distribution before profit first.
But you were using that to pay
your personal estimated quarterly
taxes and taxes that you have
to pay on April 15th, et cetera.
But really kind of like that
profit account and that tax account
are really ways where you can.
hold on to that cash and see where
it's going and how it's being used.
Instead of, what usually happens is, you
never see where that money is, it just
shows up on your financial statements.
And then it's like, well,
where do I collect this?
And it's like, oh no, you plowed
it back into the business.
unknowingly.
and, through all of this.
you implemented Profit First and
you started things going, the
sales tax account was big for you.
And I just wanna point out too
that, that the tax account for
Profit First for the listeners,
you've got those basic accounts.
Everything goes into the income account.
It just accumulates there until
your designated allocation day.
Then you allocate to profit owners
pay tax and operating expense, and
in those four accounts that you're
allocating to that tax account is the
taxes that are for you as the owner
to pay the taxes that you owe, right?
As an individual, as a business
owner, to reimburse you for the
taxes that you're paying to the
government for payroll, et cetera.
That is not sales tax.
That is not any taxes that
are quote business related.
Right.
so Laura, You're like, this is great.
This concept of allocating money and
putting money aside, you opened up a
separate sales tax account, which if you
collect sales tax, you absolutely need
to sweep the money that comes into your
income account that is not yours and will
never be yours into a sales tax account.
And, you were working with a different
accountant at the time and this is sort
of in the COVID days, and you had the
sales tax account and California, tempted
you with something that was pretty
tempting to a lot of business owners.
What was that?
Laura: Right?
So California, for those of your listeners
that aren't in California or don't know,
California was on lockdown during COVI
and restaurants were deemed essential.
so we were allowed to open for
takeout and occasional dine-in
seating, but mostly for takeout.
and I don't know really what they
were thinking, but they decided to
defer sales tax payments to the state.
So right now, every month, I collect
all the sales tax from my guests, and
every month we file a sales tax statement
and the money comes out of our account.
And the government said, we're gonna defer
that for an indefinite amount of time.
what our accountant told us and what the
conventional wisdom and what everyone was
talking about is, oh, look at this now.
You can use this money to pay bills.
You can use it for this and that.
Pay labor and.
I, at the beginning of COVID, I was
actually audited by the state for sales
tax, which was an experience that I
would never wanna go through again.
but I'm sitting there thinking.
They're gonna say, we want our sales
tax now and they're gonna give, what, 30
days for you to come up with this money?
for someone like us, it's thousands
of dollars every month that
we're collecting in sales tax.
And so even if it's three, four
months, you're talking almost $50,000.
if you're spending that, where
are you gonna get it back?
so our accountant came to us and
they said, all of our clients are
using this money and you should
take advantage of this opportunity.
And I said, no, it's not my money.
It's never been my money.
It's going into the pass through
account and that's where it's going.
sure enough, the state came back and I
think they gave like a 30 day notice.
And then you were fined if you
didn't, pay a hundred percent of
it back in that amount of time.
Yeah.
Danielle: Our businesses are
based in California too, and
the penalties and fines in
California are pretty astronomical.
Laura: yes.
Danielle: and they accrue and it
can get ugly and with interest, so
it almost, was like a dirty trick.
The state played Yes.
On people.
so the lessons you guys is that sales
tax is not your money and if I could
write, an added thing to profit first,
just the basic profit first book is
that if you collect sales tax, you
absolutely need a sales tax account.
because that is not your money.
Thank you for sharing that.
And then, you started
implementing Profit First.
You were taking baby steps, you
implemented a couple of accounts
and you were working with a
different accountant and bookkeeper.
Then Kasey's book, profit First for
Restaurants came out and it was like, huh.
Laura: Right.
Danielle: Yeah.
The exact game plan for you and.
there's been several, iterations of
Profit First that have been written,
for e-commerce sellers, chiropractors.
healthcare practitioners, mental
healthcare, just, all sorts.
so make sure that you
check those out on Amazon.
if you have a specific industry that
has some nuances but what made you
decide that like, I need to work with
a certified profit first professional
to help me fully implement this.
Laura: So our accounting firm at
the time, they were open to what
we were doing and she was like,
well, I kind of don't get it.
I guess it makes sense, but I just
wanted that extra line of accountability.
every month, you know, I get my
numbers, and there's this real sense
of, these were your allocations.
these were the goals
that you were going for.
let's look at this.
Let's look at that.
It was also, a real benefit
with, something that we
have, and that's gift cards.
for us, we get a huge amount of gift
cards purchased every November, December.
And one of the things our accountant
said is, where's all this money
that you've collected for gift
cards that haven't been redeemed?
So we decided to open up a
gift card holding account.
so when gift cards are purchased
every week, and a lot of times
they balance out the ones redeemed
versus the ones purchased.
But that November and December,
we're talking over a $10,000 worth
of gift certificates are purchased.
and it takes a year or so
for those to get redeemed.
for example, last week we had
$3,500 worth of gift cards redeemed.
it was a slow week for
us, taxes and all of that.
And 10% of our revenue
was paid with gift cards.
Wow.
And so I was able to transfer
that money into our OPEX account
so that we didn't lose any money.
The money was there, we held
it and we transferred it over.
Danielle: and that's an important
account, especially in California.
because in California,
gift cards never expire.
Laura: Right.
Danielle: so someone could come,
even if you put an expiration
date, it doesn't matter.
It still doesn't expire in California.
So really, really important that whether
you're, whether you have gift cards that
haven't been redeemed and you've collected
revenue that has not been realized
yet, or if you're collecting a catering
deposit or things that you're collecting.
Before services are rendered or before
the product is delivered, you really
need to have that separate account that
you're keeping that money in, and then
you only move it to your income account.
Once that income has actually been
realized, the gift card's been
redeemed, the catering order has been
paid in full and has been picked up.
Those are great examples.
And then, I mean the labor account,
when in doubt add an account, but the
accounts that you have, are some of your
largest expenses like labor is, for sure
it's a subset of operating expense, but
let's get clarity to it because, you saw
what running your business off of one
business checking account looked like,
Laura: right.
Danielle: And then you started to
see what it looks like when you
have multiple accounts and you can
start to see the purpose for that.
I'm sure you sleep much better now.
Like come on, tell us all the
benefits and wonderfulness.
Laura: There is so much peace of mind.
I can't explain that enough.
On Monday, that's when all of our deposits
have hit the bank from the weekend
we're closed on Sundays and Mondays.
So, Monday morning all
of the deposits are in.
that's when I go through what
my allocation should be and
I transfer all of the money.
And it is true, like Mike talks
about in the book, I literally
every morning check my bank account.
Sometimes I check it twice.
and especially labor, so running payroll.
I have that number in a designated
account, and when I'm running my
payroll, it tells me this is how
much money we're gonna pull and.
I don't panic, I don't stress, I
can't emphasize enough the peace of
mind, especially with payroll, and
I don't know about other industries.
I've only known restaurant world,
but I can tell you it's not uncommon
for anyone in the restaurant industry
to have worked with a restaurateur
that has bounced a payroll check.
It.
It's just everyone has worked
for someone that has, the peace
of mind is just very refreshing.
It also allowed us, we just hired
another manager, a very good salary, and.
There's a bit of nervous there because
we are increasing revenue in order to,
be able to really sustain that position.
We know we can do it because
we have a track of our numbers,
and it's so black and white.
The number is right there.
it's not, oh, can we
afford this in payroll?
No, that number's there, I'm not worried.
every once in a while we do
have slow weeks where, you can
cut labor here and there, but.
Will have to look and it makes me say,
oh, I'm transferring $2,000 from my profit
account or from, you know, my ops account
into labor so that I can make payroll.
Okay.
Reality check.
We have to make some changes.
This isn't working.
but we always,
Danielle: but you're
getting that in real time.
That's like the beauty of it.
It's like, 'cause previously before
you implemented Profit First and
you had your prior accountant,
you're getting income statements.
That's a rear view of last month.
Laura: Right.
Danielle: And like, we're in April, even
when we're the first day into April.
Yeah.
There's nothing you
can do to change March.
Laura: no.
Yeah.
I've already run March payroll.
it's gone it to look at one large
number for bank account and then have
to sit and, because I would do this,
so I know I'm not alone in this.
I would have to go through, okay.
Run my uncleared checks report.
Okay.
What checks do I have coming through?
Okay, now I have payroll
that's coming through.
I'm looking at this really big
number in my main account and,
okay, well, so I have, payroll will
clear and then this check won't
clear, and so then I should be okay.
'cause then I don't do that anymore.
I have this now and, to me,
payroll is something that.
should never be questioned.
Like to have peace of mind about
paying your team as a business owner.
You owe that to your team
and that includes me too.
I'm on payroll.
we even had a person talk to us
and they're like, oh yeah, I'm sure
you guys are really stressed out,
not being able to pay yourselves.
I'm like, oh, no, no.
I take a salary.
yes, I am the owner.
I take profit, but this is my
job and I wanna pay myself.
And so, having that account just.
Total peace of mind.
there's no question of can you hold
your check for a couple days, or,
you know, my husband also works,
he's our executive chef and, I don't
have to tell him, oh, can you not
deposit your check for a couple days?
We gotta wait till Monday
for the income to come in.
I can't stress enough the
peace of mind of that.
Danielle: Yeah.
and you're both paying yourselves.
What you need to be paid and not that
like, oh, the husband, the executive
chef is the one getting paid and
you're just the volunteer wife behind
the scenes Absolutely not at all.
You're the front of the house manager.
You get paid what a front of
the house manager gets paid
and your husband gets paid.
And then the bonus, the perks are,
you've got that allocated tax account
and then you've got the profit account.
Yes.
So congratulations on that.
Now, can you talk us a little bit through
the difference between, kind of what is.
like 95% of accountants and bookkeepers
who, are compliance oriented.
and when I say compliance oriented,
like they understand the, gap accounting
and they reconcile your accounts and
they put the numbers in the right box,
and then they spit out, your income
statement and your balance sheet and send
it to you, and that's about it, right?
And versus now you're with Spark Business
Consulting and how are those two?
different experiences like a status
quo bookkeeper, an accounting firm,
versus working with a certified
profit first professional firm
like Spark Business Consulting.
Laura: The conversations just look
and feel different, so there's
more of an understanding of the
different accounts that we have.
there's never a conversation
about, oh, you have all this
money in this holding account.
You can just use this.
Or conversations about, I don't
understand why you have this money here.
and there's also more details of
budget, so there's an awareness of
what our allocations are supposed to
be, what we've agreed upon, whereas,
I mean, we had a great accounting
firm before, but it was just kind of
like, here are your numbers right.
And it wasn't a partnership.
And I feel like with the
Profit first, especially with
Spark, it's a real partnership.
So they are a little bit of my
CFO in that, they're like, okay,
here's your labor from this time.
It's ticked up a little bit, but
you managed it with this and so
there's much more of a conversation
about the health of the business.
And be aware of this.
Danielle: Mm-hmm.
Laura: it's a lot more of a partnership.
Danielle: Yeah.
and you use the B word budget.
the thing about Profit
First is it, my opinion.
the budget is more about the health
of your business because Profit First
is a percentage based system, and the
percentages allow you to normalize your
cash flow over the course of the year.
But like your budget is.
And because you do your allocations
weekly, which makes sense because like
your business cycle is a week and I'm sure
you know, your weekends are real busy,
so real exciting to come in on Monday
and see what the income is and such.
but what you're able to see is like,
hey, we should be hitting X on average
every week, and if we didn't hit x.
Then why didn't we hit X?
Or if we exceeded X, why did we hit X?
Right.
and now, you know, because
you have a baseline.
so the B word is really baseline.
You have baseline understanding of where
you are because of the percentages.
and because you know where your
income is and then based off your
allocation percentages, then you should
be accumulating certain amounts of
dollars based off of the income, into
these accounts, including payroll so
that there is money to cover payroll.
so the B word.
Usually is a scary word to people,
but really it's getting a baseline
of your business and operating
your business on what you have.
Yes.
and understanding, why don't we have
maybe what we need to have, right.
Or why do we have more
than we were expecting?
Right.
and that gives you real time control
because again, traditional accounting and
bookkeeping firms are just providing you
with that rear view mirror that there's
nothing that you could do to change it.
But now.
Hey.
you mentioned, like tax week was
a little slow for you guys, right?
so you knew right away that,
hey, we're a little bit slower.
I might need to make some adjustments
here, but you were able to make
them in real time instead of
being with your head in the sand.
Laura: Right.
Yeah.
you know, scrambling when I'm doing
payroll, why don't we have enough or
even just, Yeah, just looking at projects
or, it helps in just making decisions
about purchases, it helps making
decisions about long-term investments,
about reinvesting into our business.
It's like, okay, yes, we need
new glassware or something.
Okay, let's budget it.
Let's work it in.
But then at the same time.
Maybe we had it scheduled and then,
oh, we had this unexpected slow week.
Okay, we're not gonna go
ahead with that purchase.
We're gonna delay it a little bit.
it just gives us really real time,
analysis of what's going on in
our business so that we can make,
wait decisions and not three weeks
after the month passed going,
oh, that was really not smart.
Danielle: Right.
and the beauty and the clarity is the
sales tax money is out of the picture.
Yeah.
Because you're not operating
off that one account anymore.
The payroll dollars are in a
separate account, the labor dollars.
you know, it's like, okay, well
let's see what we have really
in operating expenses to, make
improvements, make additional purchases,
And it's like, well, you know what?
The baseline is a little
thinner than normal.
So, we need to hold off on that.
Laura: Right?
Danielle: So yeah, what is your
advice to the listeners out there
who've read Profit First and who
think, but my business is special.
My business is different.
This won't work for my business.
'cause you kind of thought that when
you originally read Profit First,
Laura: right?
Danielle: And then you had a
conversation with Mike and then you
had Profit First for restaurants
and then your life changed.
Laura: I will say, so I had a
little side hustle back before we
had the restaurant as a mom and I
had this mom entrepreneur business.
I had a lot of fun with it.
And looking back, I had a hobby.
I didn't make any money.
I didn't have budgets.
I didn't really know what I was doing.
And I have talked to more than
a few business owners that
are actually running a hobby.
They're not paying themselves,
they're losing money.
They're investing in what
they're calling a business.
And so I think there's a little bit
of a fear of diving into numbers
because what if this is a non-existent
business, but there's a reality in that.
You deserve more.
If you're gonna put your heart
and soul into running a business.
You need to know your numbers.
And I think profit first is
the easiest way to do that.
if you feel like, well, I don't wanna
do it because I can't always pay myself.
That's a conversation you need to have
if you don't have that money to put into
your owner pay account, if you don't have
the money to put into an OPEX account.
Then you really need to have a hard
conversation about what you're really even
doing before you get yourself into a lot
of debt, and I think that was the original
reason that Mike wrote Profit First.
he shared a story about being bankrupt.
so for any entrepreneur or
business owner that feel like,
oh, I don't think I can do it.
Just try with a couple accounts, try your
biggest expenses, things that keep you
up at night, and just set those aside.
And if it doesn't work for you and
you can't do it, that's the reality
of what's going on in your business.
then you can have more clarity and more
information to make future decisions.
As someone that ran non-profit first
and now does, the peace of mind of
running a business that you know is
sound and secure versus the people
walking around going, I don't know.
I don't know.
And I know a lot of entrepreneurs
and that's the world they live
in, and it's just not necessary.
Danielle: Yeah.
Yeah.
very well put.
and you're exactly right.
And thank you so much for sharing your
journey with us, Laura and, To the
listeners out there, if you would like
to make the move like Laura did and work
with, spark Business Consulting, then you
can visit Spark business consulting.com.
Or if you want to find another Profit
First Professional, then you can go to.
Profit first nation.com
and click on contact and we
will connect you with, the other
certified profit First Professional
accountant, bookkeepers and coaches.
Cheers to another profitable
day, my entrepreneurial friends.