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Why You Should Put Profit First

Marketing Podcast with Mike Michalowicz

Profit? What the heck is that? I’m just working for a salary. Unfortunately, that’s the problem with many businesses. When profit isn’t the goal there generally isn’t any profit and like so many things all that comes in used up.

My guest for this week’s episode of the Duct Tape Marketing Podcast is Mike Michalowicz. Michalowicz is an entrepreneur behind three multimillion dollar companies, a speaker, and author of many books, including Profit FirstHe and I discuss why it’s important to put profit first and how to turn your business into a money-making machine.

Michalowicz is a former small business columnist for The Wall Street Journal, a former MSNBC business make-over expert, and is a popular keynote speaker on innovative entrepreneurial topics. In addition to Profit FirstMichalowicz is the author of Surge, The Pumpkin Plan and The Toilet Paper Entrepreneur, which BusinessWeek deemed “the entrepreneur’s cult classic.”

Questions I ask Mike Michalowicz:

  • Why do you need to account for profit first?
  • What is wrong with the general way people look at the money aspects of their business today?
  • What are the basic accounting principles of a profit first formula?

What you’ll learn if you give a listen:

  • Why Parkinson’s Law is important to understand
  • Why debt is a small business killer
  • How to determine the health of a company

Key takeaways from the episode and more about Mike Michalowicz:

This week’s episode of the Duct Tape Marketing podcast is brought to you by Office Small Business Academy, a monthly web series from Microsoft Office featuring experts with real-world advice for those would rather be the boss than work for one. Learn more at aka.ms/ducttapemarketing.

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If you liked this post, check out our Guide to Managing Your Small Business Finances.

1 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.

Profit

photo credit: Dave Dugdale via photopin cc

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.