Why Is Profit Viewed As a Bad Thing?
Marketing podcast with Mike Michalowicz It always amazes me when I see how little focus business owners have on this concept known as profit.
There seems to be a total infatuation with revenue and head count when the true health of a business investment is profit. Far too many business owners come to view profit as what they pay themselves and to me that sounds a lot like a job. My guest on this week’s episode of the Duct Tape Marketing Podcast is Mike Michalowicz, author of The Toilet Paper Entrepreneur, The Pumpkin Plan and Profit First: A Simple System to Transform Any Business from a Cash-Eating Monster to a Money-Making Machine. In this interview Michalowicz reveals several simple, yet powerful ways to change the profit mindset including, most importantly, taking profit from the business first. Michalowicz also talks about his own experience of going from newly minted millionaire entrepreneur to bankruptcy a few short years later. A couple of his tips, such as creating separate bank accounts for things like expenses, salary and profit, may seem like a shell game at first read, but I know first hand that it’s a powerful way to create some financial discipline where there often is none. Several years ago I had Greg Crabtree, a CPA and author of Simple Numbers, on this show and he implied that if a business was not showing at least a 10% profit after all expenses, including the expense of paying the owner a competitive salary, the business was in trouble. I think the key is to view a business as an asset with a pretty big investment on your part. That’s the way that any potential buyer of the business would view it – “could I invest in the business and see that investment pay dividends otherwise known as profit?” The making of profit gets a bad rap for a couple of other reasons too. Many people were raised on the notion that profit is a bad thing – that someone was losing if you were gaining. This mind set is pervasive and does a great deal of harm in the way business owners approach everything from pricing to service models. Another attack on the notion of profit actually comes from well intentioned accountants who view profit as the cause of short term tax burden rather than the cause of long-term health. I know people can get caught up in and consumed by the notion of profit, but the first step is to view profit as the important measure it is in business.