One of the best small business thinkers in the business, Mike Michalowicz just released his third book, called Profit First. This books solves one of the biggest problems for most entrepreneurs: how they actually get paid to run their company!
The story goes like this: The owner works really hard to sell and pay all their bills every month. When they go to pay themselves last, there is no money left! Mike’s new system proposes to change all of this and pay owners first. That is, build the owner’s pay into all the current business expenses.
Mike mentions that this is similar to the envelope system that my mother used where when she cashed my father’s paycheck and would actually divide the cash into different envelopes so there was enough money to pay all the bills when they were due. Mike suggests ‘an envelope” system (or in this case, a separate account) just for the owner’s pay or profit.
He throws out years of accounting principles by telling readers to forget:
Sales – Expenses = Profit
and instead use this new Profit First Formula:
Sales – Profit = Expenses
Most small business owners are bad at the financial stuff. I was. I lost $1M in the sale of my last company because I could not read the financial statements. Mike’s book does a great job of simplifying all the financial concepts so we can understand them and pay yourself first! Mike gives the owner real life assessments and workbooks to use.
I highly recommend this book!
