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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.
Hello, my entrepreneurial friends
and welcome back to another
episode of Profit First Nation.
Today we're gonna talk about the
consequences and the ripple effects
of failing to implement Profit First.
You've heard about it.
Maybe you've read the book.
Maybe you've seen myself or Mike
give our keynotes on profit first,
but something has kept you from.
Making the leap.
when I first started, working
on my keynote, I traveled with
Mike and, I mean, this is going
back like seven, eight years ago.
And, I remember we were on a tour and we
were hitting up different EO chapters.
People would come up to him afterwards
just fanning out and saying, oh
my gosh, I love Profit First.
I've read the book two times.
I've listened to it on audio three times.
I have seen you keynote.
This is my second time seeing it.
Mike would be like, amazing.
That's great.
How's it working out for you?
And inevitably, the most common response
was, well, I haven't implemented it yet.
I'm not profitable yet, so
I'm not ready to implement it.
And it's like.
Oh my gosh.
Well, how's that working out for you?
Because you've invested all this time
and effort into understanding Profit
First, but you missed the key point.
Profit First is for every business that
is running their business out of one.
Banking account because when you're
running your business out of one business
banking account, that means that just all
the money goes in there and what happens?
Well, the bills and the operating expenses
get paid, and it looks like you got money.
So when the need for new equipment
or spending more on marketing comes
up, you're like, you look at that
one bank account and say, okay,
well we've got the money to spend.
And then if you're lucky.
If you're real lucky, you have a little
something left over for a profit.
You probably don't even have
enough to pay yourself consistently
when you're operating out of
one business checking account.
And that's the trouble.
That's why 83% of small businesses
operate check to check guaranteed.
Those businesses that are operating
check to check money comes in and
it's gone in a flash are operating
out of one business checking account.
So let's run through
these consequences of.
Not implementing profit first, and
the first one is cash flow stress.
When you're operating out of one business
checking account, you are gonna have
cash flow stress because you are going to
see the money and you're gonna spend it.
You're not going to be prudent
about when, where, why, and
how you're spending that money.
When you have profit first and you
are taking that money from the income
account, as customers pay you, that
money accumulates in your income account.
And then on your designated allocation
day, the book says the 10th and the 25th.
I allocate biweekly on
weeks that I have payroll.
On those allocation days, you're gonna
allocate the money to profit first.
Then owners pay taxes and then operating
expenses at the basics of profit first.
And now you know exactly how much
you're accumulating towards profit.
You know how much you have.
For owners pay, you know how much you have
set aside for taxes, and now we're not
spending the whole lump of everything we
got in terms of revenue from customers.
Now we know that we've got this
specific amount to spend when
it comes to operating expenses.
And the beauty here is when I have.
$5,000 to spend on operating expenses,
I'm gonna spend $5,000 or less, right?
and if I need to spend $6,000 and I only
have $5,000 to spend, what am I gonna do?
I'm not gonna spend $6,000.
I'm gonna figure out a way to be
resourceful to get what I need
that I thought was gonna cost
$6,000 and get it for $5,000.
Sometimes it means making cuts.
And not spending on something.
Sometimes it means finding a
cheaper or a different alternative.
Being creative about things, it's
amazing what you can do when you know
exactly how much you have to do it,
and it's not taking that big lump of
cash that all of your clients paid you.
That is typically in that one
business checking account.
All right.
Now also too, in terms of the cash flow
stress, in terms of profit first, we've
got those four basic accounts, profit,
owners pay, tax, and operating expenses.
But operating expenses, this one, that
can be broken down into multiple accounts.
When in doubt, add an account
is what we say in profit first.
So your operating expense can be
made up of, let's just say based
off of your current allocation
percentages or your target allocation
percentages, that your operating
expense is allocated at 50% of what
your income balance is of real revenue.
so what you can do with that is you
can say, okay, well 30% of this needs
to go to payroll, 10% of it needs
to go to operating expenses, and
another 10% needs to go to marketing.
So you'd actually have three
sub-accounts, of that operating expense.
You'd have payroll.
bills.
overhead expenses, and then
you'd also have marketing.
So now we know exactly
what we have to spend.
We're not overspending.
And when we're not
overspending, what happens?
The cash flow, stress goes away
because we know where the cash is
going, where the cash is flowing.
And when you have that, you don't
have cash flow stress, right?
The second ripple effect of
implementing Profit First is
guaranteed owner's compensation.
You are the MVP of the company.
You are your company's most valuable
person, and you as the company's most
valuable person, absolutely need to
get paid a fair and equitable salary
because if you continue to shortchange
yourself and say, oh, well, sorry, we
don't have enough money to pay myself,
but I've paid my employees, I've
paid my vendors, I've paid all this.
Over time, you are going to get burned
out on the business because you're
getting nothing in return for all
of the blood, sweat, tears, the risk
you put into your business every day.
I'll tell you this, um, before Profit
First I had been an entrepreneur
for many years before then.
But when I got married and, my husband
said, Hey, I noticed we didn't get paid
this week by your company that you own.
What's the deal?
And I scoffed and I said, Ugh.
Well, I'm an entrepreneur.
Sometimes we pay ourselves and
sometimes we don't pay ourselves.
That's the badge we
wear as an entrepreneur.
And he was like, what?
He came from a blue collar family,
where, you know, working for a union,
that check was good as guaranteed.
And I realized at that point that
clearly I needed to fix this.
I needed to change things if I
wanted to, maintain a marriage.
And so that's where Profit First came
into play, and I was able to see that yes.
Allocate to profit, then
allocate to owners pay.
It is the second most important
allocation that you do.
It's not something that comes at the end.
It's not what's left over.
It is a priority so that you don't get
burned out and that you are creating
something that's even more valuable.
No one's gonna want a business
that's not gonna pay them.
So start paying yourself
with profit first.
The third ripple effect
is growth decisions.
So coming back to, operating out
of one business checking account.
If you need a new piece of equipment,
if you need to make a big bet on
something and you need to put money on
it, how do you know you have the money
to spend when you're operating out of
just one business checking account?
When you implement profit first,
you have multiple opportunities to.
See and save for those growth
opportunities and be savvy about
making those decisions because money
and being successful in profit first
is just understanding the difference
between spending and saving.
That's it.
And sometimes we need to save a
little bit more over time before we
make that big new equipment purchase
that thing that's gonna help us grow.
Yeah, it's gonna help us grow, but we need
to do it in a thoughtful and methodical
way and make sure that we have the cash.
To do it.
So again, when in doubt, add an account.
You can always add an account for
new equipment or replacing equipment,
and it's just again, a subset of
that percentage of what you're
allocating to operating expenses.
And then when you have the money, now
you have the opportunity for growth.
The other benefit is
your profit hold account.
So remember in Profit First.
When you're allocating to your profit
account, we're then going to transfer
that to your profit hold account at an
inconvenient bank so that money is in
a savings account at an inconvenient
bank, outta sight, outta mind.
And then at the end of each quarter,
you're going to go to that inconvenient
bank and you're going to take your
profit distribution and if you have
business debt, you are going to take
99% of what's in that profit hold
account and put it towards paying down
the principle of that business debt.
Right?
You're servicing the debt from
operating expense, but you're going
to pay down the principle and get
rid of that debt by using your profit
distribution at the end of each quarter.
Once you've paid off your debt,
then when you have your designated,
Profit distribution date, at the
end of each quarter, you're gonna
take 50% out of that profit hold
account, and that's your money.
that's the joy and the fun
of being an entrepreneur.
This is where you can take your
family on a great vacation.
This is where you can put it towards
that big new house or that pool, or those
great things that you've always dreamed
about making a reality with your business.
Then you're gonna keep 50% in your
profit hold account or sweep it
into what I call a vault account.
And that's gonna be the money that you
need in the event that there's a crisis.
I don't think, and I am hoping, knock on
wood, we don't have another COVID, but
it's gonna be that money For that thing
that can really change your business.
It's your own line of credit
in your business to a certain
degree, but it's that thing that
you kind of don't wanna touch.
And I guarantee you this, once you start
getting into this habit of allocating
to profit and having these amazing
quarterly profit distribution days, once
a quarter, you're going to even be less
tempted to make those frivolous spending
decisions on growth opportunities.
The fourth ripple effect to not
implementing profit First is
tax surprises and compliance.
Alright, what am I talking about here?
Well, there's two types of
taxes, and I wanna clear this up
When it comes to profit first.
So in the four core accounts, profit
owners pay taxes and operating expense.
That taxes account is taxes
that you as the owner pay.
So it does count for the taxes
that you have to pay as the owner
of the business for the profit
that you make on the business.
It also accounts for reimbursing you
for the taxes you pay, in terms of,
payroll taxes So that tax account
is specific benefit to the owner.
Profit owners pay and taxes are
three servings for you, the owner.
We're just going to give them specific
responsibilities to either be profit,
to be owners pay, or to be the taxes
that you have to pay on the business.
The other type of taxes
that you have, sales tax.
Sales tax should come.
Off the top because if you collect sales
tax and have to remit sales tax, that is
not your money and it's not real revenue.
So when you are doing your
allocations from your income account,
that is on real revenue, okay?
So if there is sales tax that you're
collecting, you need to peel that
sales tax out and put that into
a designated sales tax account.
Again, when in doubt, add an account,
So again, that money's not there.
When you are operating out of one business
checking account and you have to remit
sales tax, how on earth do you know?
What you owe in terms of your sales tax
liability and how much of that is in
that big pot of one business checking
account, so you can stay in compliance,
you can stay safe when you have.
That separate tax account, for sales tax.
And also too, I talked about
this a little bit earlier.
A subset of operating
expense can be payroll.
And again, the salary and the
payroll taxes that you pay
go into that payroll account.
so when your payroll company takes
out the money to fund the paychecks
and to pay the payroll taxes, it's
coming out of that account and you
know that you have that money in there.
This is really, really simple when
you implement Profit First and
you give yourself this clarity
with your cash and peace of mind.
The fifth ripple effect of not
implementing Profit First is really
the overall health of your business.
When you have profit First implemented
in your business, your bases are covered.
You've got profit that is making
your company stronger, that is
going into a vault account at
the end of each quarter and just
building up your own line of credit.
in the event of an emergency or something.
But the other thing too is that you are.
Keeping some cash visible in the business.
It shows up on your balance sheet, and
it makes your business more valuable and
more attractive to potential investors,
or in the event that you want to sell
the business, or tragically, if you
pass away and your family needs to
sell the business, you've set them up.
For a very successful and
higher ticket sale than if you
didn't implement Profit First.
So the business health is critically
important, and implementing Profit first
and being able to see specifically where
the cash is going on a consistent basis.
Your financials will look so clean with
Profit First implemented in your business
and not operating outta one business
checking account that you are driving
up the valuation of your business.
why be in this game unless you're going
to be running, operating and teeing
yourself up for a successful exit.
So again, the overall business health is.
Massive when you implement Profit
First in your business and you won't
be one of those sad statistics of, not
many businesses make it past one year.
Even fewer businesses obviously make
it past three years, five years,
ten years, but the businesses that
implement Profit First really don't
get into trouble and stay healthy.
Thank you for tuning into this
episode of Profit First Nation.
If you would like to work with a profit,
first, professional, certified bookkeeper,
accountant, or coach to help you really
dial in and implement Profit First, right?
Now then go to Profit First
Nation and click on contact where
you can connect with one of my
fellow Profit First professionals.
Cheers to another profitable
day, my entrepreneurial friend.