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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
Welcome to Profit First Nation, the
official podcast for entrepreneurs
who are operating their businesses in
the zone of permanent profitability.
I'm Mike Michalowicz, the author of
Profit First, and now, here's your Profit
First Nation guide, Danielle Mulvey.
Welcome back to Profit First
Nation, my entrepreneurial friends.
Today we're going to talk about some
of the realities when it comes to
implementing profit First, and the biggest
reality is most people implement it but
then fall off the wagon in short order.
So.
I'm gonna help you avoid being one
of those statistics because it really
is something that you need a mind
shift on, a behavioral shift, on an
emotional shift, on a logic shift on,
and something that you just have to.
Get committed to making
it work and be successful.
My dad, when I started my first business
and I was kind of complaining about
things and he said, if it was easy,
Danielle, everyone would be doing it.
So you have to embrace the suck.
You have to embrace the hard work.
You've gotten this far, you're
one outta 10 people who.
Created a business.
You're one out of 10 people
who employs and gives other
people opportunities and jobs.
You have a business that is
creating a wonderful product
or service for the world.
Let's make that.
A long term security for you.
The funny thing when it comes to
profit first is a lot of people are
uncomfortable with the thought of
scarcity when you're operating out
of one business checking account.
It looks like you've got a shit
ton of money, but you don't
really have a shit ton of money
to spend on operating expenses.
And that's the problem with operating
out of one business checking account.
So the important thing is that we
are not in this to be about scarcity.
We're in this, guys,
for long-term security.
When you are allocating to profit.
Owners pay tax and operating expenses
or those sub-accounts under operating
expenses like payroll bills,
subscriptions, marketing, et cetera,
then you are building a sound and healthy
business that will give you and your
employees, your family long-term security.
The funny thing about money
is that tragically money is
90% emotion and 10% logic.
The emotion is from how we grew up.
How was money perceived
discussed utilized?
Was there a scarcity
mindset in your household?
was there just never enough?
And so when we take what we had in
childhood, when it comes to money
and we apply it into business,
it can shoot us in the foot.
So we need to flip that and
we need to be 90% logic.
10% emotion.
Put all of your chips on proven
processes and systems when it
comes to operating your business.
And don't get caught up in the emotion.
Don't get caught up on that little
voice saying, oh, it'll be fine,
because that is just going for
short term instead of long term.
we want long-term security.
The funny thing is, is that, again,
it's this sort of, really, honestly,
huge challenge for entrepreneurs
because you have a little bit
of creativity inside of you.
You have a little bit of competitiveness
or a lot of competitiveness inside of you.
You want to make things great
and special for your customers.
That's why you decided
to start a business.
'cause you said, Hey, I can do
this better than Joe Schmo or
the guy that I'm working for now.
So you created your own business,
but in that aspect, we can get
caught up with getting too consumed
with chasing the new again.
This is the emotion.
We're chasing that next sale we're
chasing that next opportunity.
We're saying we need this equipment in
order to grow, we're chasing growth.
And we're letting that emotion
take over instead of being
pragmatic about the situation.
So again, when you implement Profit First
and you have these allocations, you have
these designated buckets for your money,
these designated accounts for your money.
You've got the profit.
The owners pay the tax and the
operating expenses or those sub-accounts
under the operating expenses.
Now you know what you have to
spend, and you figure it out.
You figure out that, hey, we only
have this much to spend on marketing,
so we need to be really savvy on it.
Hey, remember, if you haven't
heard this episode, a reminder
that your marketing should produce
a six x return on investment.
So every dollar you spend in marketing
should produce a six times return.
Two times isn't even worth
the money it's printed on.
You need to push and make sure
that you're measuring marketing
to get that six times ROI.
Alright, so we're going to
focus on the logic guys.
We are going to stay committed
to operating our businesses
for long-term security.
Businesses that implement Profit First,
over a million businesses have done
so, and people who have successfully
implemented Profit First and kept
with it Lives a lot less stressful
lives than those who are operating
out of one business checking account.
And you know,
Things happen so let's walk through the
pitfalls that can stymie or get people
with good intentions that have started
implementing Profit first, but don't
quite get it to, that rhythm that it needs
to be on and stay consistent with it.
the first pitfall that people
fall into is they think Profit
First has to be all or nothing.
So when you read Profit First.
like I did, and you see those target
allocation percentages and you're
a type A personality, maybe like
me and 98% of other entrepreneurs,
you think, oh, no problem.
Mike Michalowicz has never met Danielle
Mulvey, or insert your name here, and you
think you can hit those target allocation
percentages outta the gate, which is
what I did with Profit First when we
implemented Profit first in our business.
Again, I said, oh, Mike Michalowicz
doesn't know Danielle Mulley.
She's a high achiever.
She can hit these target
allocation percentages.
And so we did our first allocation
based off those target allocation
percentages, and it was mind blowing.
Amazing.
We happened to have a record.
Amount of income in that period
for that first allocation day
that we were accumulating towards.
But when it came to our
second allocation period.
Oh, what a disaster.
It was a total disaster because we bit
off more than we can chew, and we went
at those target allocation percentages
outta the gate, and that's when I said,
okay, I really want to get this right.
I understand.
I messed up and I didn't follow
the instructions, and because
I'm such a high achiever and a
little bit crazy, what did I do?
I became a certified profit
first Professional, and
now my life mission is to.
Have this podcast and to do keynotes
and work closely with Mike on these
workshops and opportunities to make sure
that you don't pull a Danielle Mulvey
and do too much out of the gate and
think you have to be all or nothing.
When you correctly implement profit
first, you are moving your allocation
percentages to profit owners pay tax.
Operating expense up or down?
1, 2, 3 percentage points.
Quarter over quarter.
To be honest, it takes six to eight
quarters If you're an existing
business to get to your target
allocation percentages, it's okay.
It doesn't have to be all
or nothing outta the gate.
Give yourself the grace, give yourself
the time and give yourself the.
Ability to be successful with profit first
when you realize, hey, this is gonna take
six to eight months, and that's great.
It's all good.
Now, if you're a new business, then
you can hit those target allocation
percentages outta the gate because
your business knows no different.
Okay?
But if you have an existing
business, slow your role.
We're just going to do our instant
assessment, and we're going to
incrementally move those target allocation
percentages up or down, 1, 2, 3 percentage
points, quarter over quarter to get to
those target allocation percentages.
The next pitfall is too much
comfort in the status quo.
Hey, we've been in business for a year.
We've been in business for five years.
We've been in business for 10 years,
and we've made it okay with one account.
And it just seems like a lot
of work to open up multiple
accounts to change things up.
I talked to my bookkeeper, they haven't
heard of Profit First, but when I told
them that we were gonna add accounts,
they're like, that doesn't make sense.
And they think that it's
gonna make more work for them.
It doesn't make more work for anyone.
When you want to open up additional
accounts, you just need to send an email
to your banker at the bank and tell 'em
you want to open up additional accounts,
and they're gonna be thrilled because
most bankers, they get actually a.
Spiff or a bonus on opening additional
accounts for existing account holders,
because that means more of your money's
gonna be at the bank and you're gonna
be less likely to change when you
have multiple accounts at that bank.
So your bankers incented.
They're gonna be delighted when you send
an email saying, Hey, I'd like to open
up four additional checking accounts.
And you've got to get past any fear.
I know a lot of people feel embarrassed,
like, oh my gosh, usually my bank account
has, a hundred dollars in it because when
money comes in, it's gone in a flash.
And so you're embarrassed when you
have an account balance of a hundred
dollars to go into the bank and say,
yes, I need 4, 5, 6 more accounts.
And that's okay.
let that fear go because your
banker's gonna be excited.
They don't care if
you've got $10, $20, $30.
You are going to be stickier with
them when you implement Profit First
and you add those bank accounts to
your existing banking relationship.
So.
Do not be fearful.
When we have fear, we're paralyzed.
Again, we're letting emotion take over
and we don't wanna be 90% emotion.
90% emotion is a recipe
for failure my friends.
Move it to 90% logic.
Trust the process.
Trust the system.
Trust the million businesses that
have successfully implemented
profit first and have raving.
Things to say about Profit First.
You'll never meet someone who has
successfully implemented Profit First
and slowed their role and got into their
target allocation percentages and said,
oh, well, that was a waste of time.
That was a big mistake.
Yeah, good luck.
That person doesn't exist.
Because they trusted the process.
They went all in on the
logic, and they squashed that
emotion down from 90% to 10%.
The other pitfall is
timing and life realities.
Yeah.
Things are gonna come up and that's
when people tend to get off the rails
when it comes to continuing to work
towards successfully implementing
profit first and working towards
those six to eight quarters to get to
their target allocation percentages.
This is a new behavioral system.
This is.
Logic, and this is a
proven process and system.
When you trust the process,
it will work for you.
When you hijack the process, you
don't have a process anymore.
You've discombobulated it.
That's what you have to stay true and
specific to the process and to the
system, and avoid temptations to hijack
it when you don't have enough money.
In an account because you've
allocated a percentage and
that percentage wasn't enough.
That's a gift because you are immediately
seeing what is wrong with your business.
let's say it's location day and it's
time to allocate and you allocate to
your percentages and in your operating
expense account, gosh, you came up short.
I don't have enough money to
pay all the bills that are due.
What do you do in that situation?
Well, you're gonna have to
delay paying some bills.
You're not gonna rob from
profit to pay that bill.
You're not gonna rob from owners
pay to pay that bill, and you're not
gonna rob from tax to pay that bill.
You're getting this gift of, Hey,
why don't I have enough money
in my operating expense account
and that my friends is because.
There's not enough money
in the income account.
Profit first is a percentage base
system, so the percentages help
normalize your cash over time.
Now, the issue is what's
the balance in your income
account on your allocation day?
You should kind of know what your average
needs to be in your income balance,
and there's gonna be times when let's
say your average needs to be $15,000.
When you have $25,000 in
your income account, wow.
You're gonna be allocating
more money based off the same
percentages into your accounts.
When your average needs to be 15,000
and your income is 10,000, you're
gonna come up $5,000 short for sure.
But that $25,000 period is going
to help build those reserves in
those accounts over time so that
you're covering yourself when you
end up having that $10,000 income.
Allocation day when you really needed
it to be that average of $15,000.
And when you do have that low
$10,000 below average income balance
on an allocation day, that's your
sign to take action right there.
Hey, why did we come up
short of our average?
What's going on?
Do we need to pick up the phone?
Do we need to make a phone call?
Is our AR.
Aging, getting too big are we not within
the 10 days our net terms should be in?
Or, do we have clients that are now
pushing 15, 20, 25 days that is giving
you immediate feedback on your business?
The beauty of profit first being a cash
management system, is it tells you what's
going on in your business right now.
Yes, you do need a bookkeeper or an
accountant to prepare your financials,
but when you get your income statement,
your profit and loss, and your
balance sheet on the 15th of the
next month for your prior month's
business, what can you do about that?
What can you change?
Uh, nothing.
Because your financial
statements are a rear view.
Look at your business.
It's gone.
That month is closed and there's
nothing you can do or change about it.
But when you have profit first and
you're seeing how your income balance is
growing every day towards your designated
allocation day, whether it be the 10th
and 25th, or it's every other week.
It's on this rhythm and you're seeing,
hey, gosh, our allocation day is two days
from now, and we need to average $15,000.
Right now we're sitting at $11,000.
Where's this other $4,000 gonna come
from to get us up to our ideal average?
That's your sign to say, Hey.
Do we need to pick up the phone
now before our allocation day?
What do we need to collect to make
sure that our income balance is getting
and is at what we need it to be?
Profit first actually helps
you be better in real time.
Just avoid getting hijacked or
getting caught up in seasonality.
So go to, one of our drip episodes,
the drip account is for businesses that
are seasonal, that have, slow months,
et cetera, and your drip account will
get you through those slow months.
Because there is no excuse
for life realities and timing.
When you stick with profit First,
it will see you through everything.
Profit First saw our businesses
through COVID because we had cash in
the bank, in our profit hold accounts.
We didn't need to go
after PPP money because.
We had cash in the bank to bank on
ourselves, and we decided not to go
after PPP because there were other
businesses that weren't in a position.
They were operating outta one
business checking account.
Their money was gone in a flash.
They were operating check to
check, so those people did PPP,
but we didn't have that stress.
Because when you have cash in
your business and you have these
allocations, then you are on a
path to permanent profitability.
And the final pitfall is, really mindset.
Mindset of growth versus profitability.
And so this is where the emotion
comes in and we have to decide
between emotion and logic.
Growth is drawing us
towards, that emotion.
We gotta do this.
Oh, we gotta do this.
We like the excitement.
we like that risk because we're
entrepreneurs and no one's as
crazier, riskier than entrepreneurs,
but we've got to be careful.
And so it's a decision
to save or to spend.
And when you decide to save.
You're gonna be more profitable when you
decide to spend, then that's going to tip
the scales and reduce your profitability.
So the decision and your mindset
needs to be about protecting the
profitability of your business because
when you to protect the profit of.
Profitability of your business, you are
increasing the value of your business.
You're increasing your opportunity
for an exit, whether it's a
desired exit or it's a tragic exit
because you've exited this world.
I mean, I hate to break it to you,
but we're all not gonna live forever.
So you want to set your
business up for success.
And when you have profit first
implemented in your business, you are
set up for, a Very lucrative exit and a
higher valuation than those businesses
that are willy-nilly letting emotion
drive their business and operating
out of one business checking account.
I know that you guys have this in
you and to stay on that right track,
to stay on the path to permanent
profitability, to avoid the temptations.
Hey, wouldn't it be great to have
an accountability partner helping
you along the way, helping you
stay on track, helping you get it
right, and helping you be the most
profitable business that you can be?
Well, my friends then connect please with
one of my fellow profit first professional
accountants, bookkeepers, or coaches.
I just wanna say it's really important
that you work with a certified.
Profit First Professional.
Too many people read the book and kind
of do it their own way and there is a
big, big difference between someone who's
winging it when it comes to Profit first
and saying, oh, I know how to do this.
And someone who is a actual
certified profit, first, professional
accountant, bookkeeper, or coach.
So please connect with one of my fellows.
Certified Profit first, professional
accountant, bookkeeper, or coaches
by going to Profit first nation.com
and clicking on contact, cheers to another
profitable day, my entrepreneurial friend.