If there was one thing our book club decided on while reading Profit First by Mike Michalowicz, it’s that this book should be marketed as a how-to for business finance more than a way to make profit. Don’t get me wrong, Michalowicz does get you the profit he guarantees. But the true benefit of the book is how to set yourself up for financial success from the get to.
The main point that Michalowicz makes (and the largest takeaway that our book club had) was the idea of setting your bank account up for success before you even start making money.
While most small businesses know to have a separate business account and an account for your taxes, Michalowicz takes it even further. In addition to these accounts, he suggest setting up an account for profit, owner’s compensation, and business expenses immediately. Have every invoice, every payment come into one main large account (he calls it income) and use predetermined percentages to divvy it up between the others from there.
This provides a few major benefits: You are guaranteed profit because you’re taking profit immediately. You are able to pay yourself a legitimate paycheck biweekly because you have the funds for it. You won’t overspend on business expenses, because you have a strict budget for it. You won’t “borrow” from taxes to pay the rent, or end up with no profit because a machine broke down. It’s all budgeted and accounted for.
Michalowicz even takes it one step further, encouraging owners to push their tax and profit balances to a second bank — set up in a way so you can only withdraw money if you visit the building itself. No online tracking, no credit card, no checks, nada. He argues this is the best way to force yourself to never touch this money until it’s time (quarterly for profit, tax season for the taxes).
I highly recommend reading the book and seeing what pieces work and don’t work for you — especially if finances isn’t your strong suit. While it’s only a beginning toward a healthy business, it’s a strong one, and has the ability to set a foundation for your financial future.
What do you think of Michalowicz’s system? Share in the comments below, or join the party on my Instagram and share there: https://www.instagram.com/katrina.widener/
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