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Praise for Profit First

“Quit being a slave to your own business and start making some serious money. Follow Mike’s counter-intuitive advice and put profits first.”
--VERNE HARNISH, author of Scaling Up

“Profit First is a brilliant smack-upside-the-head revelation for entrepreneurs. Most small businesses look pretty good on the outside, yet actually struggle to stay afloat. With fascinating stories and wit, Michalowicz shows how to remove your nose from the grindstone, climb out of the quicksand, and build a business that loves you back.”
―SALLY HOGSHEAD, author of Fascinate

“Profit First may arguably be one of the greatest ‘hacks’ of all time. Apply the pay-yourself-first principle to your business and watch the profits roll in.”
―CHRIS GUILLEBEAU, author of Born for This and The $100 Startup

"Profit First is a game-changer. I implemented the system into both of my businesses and increased profits by 21%. If you want to turn a profit and grow your business, you need this book."
―MICHAEL PORT, author of Steal the Show

"Profit First completely transformed how I handle business banking. I hadn't even finished the book before immediately putting a four-account distribution system in place for new income: operating expenses, owner expenses, taxes and profit. Mike's system moved me from break-even to profitable within a month. This book is a must-read for businesses large and small."
―JENNY BLAKE, author of Pivot

“Twenty-five percent of small businesses have two weeks or less of cash in the bank. Seventy-five percent of businesses have a month or less of cash in the bank. Profit First disciplines show you the roadmap to avoid becoming a statistic. This book has the potential to change the next 20 years of your small business life.”
―DAWN FOTOPULOS, Associate Professor of Business, The King’s College NYC; author of Accounting for the Numberphobic

“Profit First is a revelation. I only wish I knew about this system when I started my first business.”
―JOHN JANTSCH, author of Duct Tape Marketing and SEO for Growth

“Entrepreneurs commonly confuse cash flow with profitability. Profit First makes the process so radically simple that you no longer have an excuse not to be profitable AND have cash flow!”
―GREG CRABTREE, author of Simple Numbers, Straight Talk, Big Profits

“Not only is Mike one of the most innovative small business authors of our time, his Profit First system―simple to apply and impactful in its results―can be the difference between constantly walking the financial tightrope or being predictably profitable. And a predictably profitable business is not only less stressful and more gratifying, it allows you to focus on what really matters… serving your customers!”
―BOB BURG, coauthor of The Go-Giver and The Go-Giver Leader

"Why are so few businesses actually profitable for their owners? Profit First turns accepted wisdom on its head and shows the real reason business owners struggle with the bottom line. This book shows you how to take home more money almost immediately."
―DORIE CLARK, author of Stand Out

“Finance is the top headache of an entrepreneur. Profit First is a must-read to avoid bankruptcy for great business ideas. Clever, easy to implement and absolutely effective (plus you will enjoy reading it).”
―SOFIA MACIAS, author of Pequeno Cerdo Capitalista

“Entrepreneurs and small business advisors finally have a practical toolkit for increasing profitability! Everyone who touches the small business world should read and apply these game-changing principles.”
―JOE WOODARD, CEO of Woodard Events and Woodard Consulting

“I took the pledge and started implementing the Profit First system after reading Chapter One. By the time I was halfway through the book my business had already turned a profit.”
―BARRY MOLTZ, author of How to Get Unstuck

Chapter Page
Introduction 1
Chapter 1 Your Business is an Out-of-Control Cash-Eating Monster 11
Chapter 2 The Core Principles of Profit First 34
Chapter 3 Setting Up Profit First for your Business 49
Chapter 4 Assessing The Health of your Business 59
Chapter 5 Allocation Percentages 75
Chapter 6 Putting Profit first Into Motion 89
Chapter 7 Destroy your Debt 114
Chapter 8 Find Money within your Business 133
Chapter 9 Profit First-Advanced Techniques 148
Chapter 10 The Profit First Life 163
Chapter 11 How to Keep it from Falling Apart 177
Epilogue 189
Acknowledgments 193
Appendix 1 The Profit First Quick Setup Guide 195
Appendix 2 The Instant Assessment Form 197
Appendix 3 Glossary of Key Terms 199
Index 201

Chapter 1

Your Business Is an Out-of-Control Cash-Eating Monster

No matter how many years you've been at the grind, you are probably well aware of the statistic that roughly 50 percent of businesses fail within the first five years. What they don't tell you is that those failed entrepreneurs are, in fact, the lucky ones! The majority of the businesses that survive are racking up debt, and their leaders are perpetually stressed. Most entrepreneurs are living a financial nightmare, one that's populated by Freddy Krueger or Frankenstein's monster in its raw, unadulterated scariness. In fact, I am convinced that I am Dr. Frankenstein.

If you read Mary Shelley's classic, Frankenstein, you know exactly what I'm talking about. The good doctor reanimated life. From mismatched body parts, he stitched together a living being more monster than man. Of course his creation wasn't a monster at first. No, at first it was a miracle. Dr. Frankenstein brought to life something that, without his extraordinary idea and exhaustive hard work, could not exist.

That's what I did. That's what you did. We brought something to life that didn't exist before we dreamed it up; we created a business out of thin air. Impressive! Miraculous! Beautiful! Or at least it was until we realized our creation was actually a monster.

Stitching together a business with nothing but a great idea, your unique talents, and whatever few resources you have at hand is most certainly a miracle. And it feels like one, too, until the day you realize your business has become a giant, scary, soul-sucking, cash-eating monster. That's the day you discover that you, too, are an esteemed member of the Frankenstein family.

And just as happened in Shelley's book, mental and physical torment ensues. You try to tame the monster, but you can't. The monster wreaks destruction at every turn: empty bank accounts, credit card debt, loans, and an ever-increasing list of "must-pay" expenses. He eats up your time, too. You wake up before sunrise to work, and you're still at it long after the sun goes down. You work and work, yet the monster continues to loom. Your relentless work doesn't free you; it further drains you. Trying to keep the monster at bay before it destroys your entire world is exhausting. You suffer sleepless nights, worries about collection calls-sometimes from your own employees-and a near-constant panic about how to cover next week's bills with a few dollars and the lint in your pocket. Didn't you start a business so you could be your own boss? Now it looks as though this monster is the boss of you.

If you think operating your business is closer to a horror story than to a fairy tale, you're not alone. Since I wrote my first book, The Toilet Paper Entrepreneur, I've met tens of thousands of entrepreneurs; and let me tell you, most are struggling to tame the beast that is their business. Many companies-even those that appear to have it all together, even the big guys who seem to dominate their industries-are one bad month away from total collapse.

My own wake-up call came in the form of my daughter's piggy bank.

The Piggy Bank That Changed My Life

I lost my way the day I received a check for $388,000. It was the first of several checks I would receive for the sale of my second company-a multimillion-dollar computer forensic investigations business I had cofounded-to a Fortune 500 firm. I had now built and sold two companies, and that check was all the proof I needed that my friends and family were right about me: When it came to growing businesses, I had the Midas touch.

The day I received the check, I bought three cars: a Dodge Viper (my college-fantasy dream car, and what I have subsequently found many people identify as the "that-guy-must-have-a-tiny-penis" car), something I'd promised I would get for myself "one day" when I'd "made it," a Land Rover for my wife, and a spare-a tricked-out BMW.

I had always believed in frugality, but now I was rich (with an ego to match). I joined the private club: the one where, the more money you give, the higher they place your name on the members' wall. And I rented a house on a remote Hawaiian island so my wife, my children, and I could spend the next three or so weeks experiencing what our new lifestyle would be like. You know, "how the other half lives."

I thought it was time to revel in the money I had created. What I didn't know was that I was about to learn the difference between making money (income) and taking money (profit). These are two very, very different things.

I launched my first business on ambition and air, sleeping in my car or under conference room tables in order to avoid the cost of hotels when visiting clients. So imagine the surprised look from my wife, Krista, when I asked the sales guy at the dealership for "the most expensive Land Rover you have." Not the best Land Rover. Not the safest Land Rover. The most expensive Land Rover. He skipped his way to the manager, doing a giddy hand clap.

Krista looked at me and said, "Have you lost your mind? Can we really afford this?"

Full of snark, I said, "Can we afford it? We have more money than God." I will never forget the stupidity coming out of my mouth that day; such disgusting words, such a disgusting ego. Krista was right. I had lost my mind-and, at least for the moment, my soul.

That day was the beginning of the end. I was well on my way to discovering that while I knew how to make millions, what I was really, really proficient at was losing millions.

It wasn't just the lifestyle I bought into that caused my financial downfall-the trappings of success were a symptom of my arrogance-I believed in my own mythology. I was King Midas reinvented. I could do no wrong. And because I had the golden touch and knew how to build successful businesses, I decided that investing in a dozen brand-new start-ups was the best way to use my windfall. After all, it was only a matter of time before my entrepreneurial genius rubbed off on these promising companies.

Did I care whether the founders of these companies knew what they were doing? No-I had all the answers (read that with a massive douche emphasis). I assumed that my golden touch would more than compensate for their lack of business expertise. I hired a team to manage the infrastructure of all these start-ups-accounting, marketing, social media, Web design. I was sure I had the formula for success: a promising start-up; the infrastructure; and my incredible, superior magic touch (more douche emphasis).

Then, I started writing checks-$5,000 to one person, $10,000 to another, every month more checks, and still more. One time, I cut a check for $50,000 to cover expenses for one of these companies. I was focused on one thing and one thing only: growth. Mindlessly throwing money at start-up companies wasn't even in alignment with my values about money; I was a bootstrapper and proud of it. Still, I was blind to my mistakes. I was all pump and dump. Grow the businesses, then sell them. In retrospect, it was clear that I would not be able to grow all of these companies to the point where they would eventually become niche authorities, as I had with my two previous companies. There was never enough revenue to cover the ever-increasing mountain of bills.

Because of my massive ego, I didn't allow the good people who started these businesses to become true entrepreneurs. They were just my pawns. I ignored the signs and kept funneling money into my investments, sure that King Midas would be able to turn it all around.

Within twelve months, all of the companies I'd invested in, except one, had gone belly up. When I started writing checks to pay bills for companies that had already folded, I realized that I was not an angel investor; I was the Angel of Death.

It was a monumental disaster. Scratch that; I was a monumental disaster. Within a couple of years, I lost nearly every penny of my hard-earned fortune. Over half a million in savings g

Author of cult classics The Pumpkin Plan and The Toilet Paper Entrepreneur offers a simple, counterintuitive cash management solution that will help small businesses break out of the doom spiral and achieve instant profitability.

Conventional accounting uses the logical (albeit, flawed) formula: Sales - Expenses = Profit. The problem is, businesses are run by humans, and humans aren't always logical. Serial entrepreneur Mike Michalowicz has developed a behavioral approach to accounting to flip the formula: Sales - Profit = Expenses. Just as the most effective weight loss strategy is to limit portions by using smaller plates, Michalowicz shows that by taking profit first and apportioning only what remains for expenses, entrepreneurs will transform their businesses from cash-eating monsters to profitable cash cows. Using Michalowicz's Profit First system, readers will learn that:

· Following 4 simple principles can simplify accounting and make it easier to manage a profitable business by looking at bank account balances.
· A small, profitable business can be worth much more than a large business surviving on its top line.
· Businesses that attain early and sustained profitability have a better shot at achieving long-term growth.

With dozens of case studies, practical, step-by-step advice, and his signature sense of humor, Michalowicz has the game-changing roadmap for any entrepreneur to make money they always dreamed of.