- Donna Lim
The 4 Core Principles to Profit First
It is well documented that reducing your plate size will reduce the amount of food you eat and help you lose those unwanted pounds. As a way of life, I serve myself on the smallest plates we have in the house and when we are out, I often ask for a to-go container as soon as my food is served to me. I place the food in my to-go container before I start eating. It’s not leftovers … it’s a well thought out decision on how much I’m going to eat.
The premise of Mike Michalowicz’s book Profit First is based on a similar principle. Lower the amount of money available for you to spend by moving profit, taxes and owner’s pay into their own accounts. I’m proud to say that I have my 5 core accounts open. I have switched my merchant services to deposit into the income account and I’ve done my first transfer into the different accounts. I was a bit scared, but like any new habit – you just must start. Don’t wait until you have “enough” money. That day will never come. Start now.
Mike observed and I concur that most business owners look to their bank accounts to see if they have enough money. If there is plenty in the account, you are good to focus on something else BUT if there is a low balance, we fly into Selling or collecting mode. We tend to consume what we see is available – just like that extra bite of food on your plate. You are full, but it’s just a bite … I’ll go ahead and clean my plate. That mentality has kept a lot of entrepreneurs poor and a lot of people with growing waste lines.
We are creatures of habit. Habits are an interesting subject… If you're interested in learning more about the Power of Habits – I recommend Charles Duhigg’s book – Power of Habits: Why we do what we do in life and business. Habits grove a pathway in our brains. They are never forgotten even if we are trying to change a habit. We can create a new habit, but the old habit can get triggered.
Profit First takes the habit of looking at our bank account and leverages it. The premise is when we receive payments from clients, we should put designated percentages in other accounts for safe keeping. We don’t need to look at those balances each day. We only need to look at those balances when it’s time to use the money as it’s designated. After this has been done, now it’s time to pay bills. Don’t have enough money in the operating checking account to pay all the bills – that’s an indication that your business can not afford all that you are spending on.
Most of us don’t NEED all that we have in our business. There are plenty of things we can go without. For instance, my laptop is 5 years old. I don’t use it much only when traveling, which hasn’t been a lot during the pandemic. It’s still in “good” condition. I may want a new Laptop with all the new bells and whistles, but I don’t need a new laptop. I'm not going to trade peace of mind for a new “toy”. I like sleeping at night knowing I have enough to pay myself, my team, my taxes and all the necessary things to run the business.
There are 4 core Principles to Profit First.
Use smaller plates
Enforce a rhythm
In my next newsletter we will dive into these core principles and see how they can work for you.
For now, I’d love for you to tell me - did you decide to buy the book?