Principle: Make more than you spend
Profit First is a book by Mike Michalowicz. You’ve heard of it.
If you’re used to divvying up the pie among your suppliers and debtors first, then eating the crumbs of profit left over afterward, time to read this.
It 1) flips the “pay first, paid second” script on its head, by 2) forcing discipline.
Flipping the script: it’s an accounting practice that collects money from sales, and auto-directs it into several different bank accounts (see Tactics below). One of these accounts is called “Profit.”
In other words, you are guaranteed profit from every sale or transaction - because you… take it before paying anyone.
Forcing discipline: you’re guaranteed a profit on each transaction because it takes profits out first. That means you’ll have less to spend on OpEX.
Can’t make your Zapier payment this month because the OpEX account is short? Tough. That’s a signal it’s time to start doing some of that manual work again for a bit.
Tactics
If you can move banks to Relay, do it - they’re founded on this PF idea.
Set up individual bank accounts for…
Income - no withdrawals, only deposits
Profit - set your intended profit percentage like 30%
OpEX - this is your working account where most expenses are paid
Owner salary - your $
Taxes
Pro Tip: if you only have one account right now that all your money flows in and out of, change the name of that account to OpEX. Then you won’t have to change all your vendor payment methods to another account, just the one(s) that pay you income.
Feed ChatGPT a few recent bank statements, and tell it to help you reorient everything around Profit First.
It will help you come up with the different allocation percentages for each account.
Feel free to give it details about your situation, how much you hope to earn/mo etc..
By the end you should have 5 different accounts, auto-distribution set up among those account for any incoming money, and be spending on daily stuff through OpEX.
When you get close to running out of OpEX one month resist the urge to pull from Profit.
Instead, just figure out what cuts need to be made where to ensure you’re maintaining that 30% margin you’ve always dreamed of.
This is your business, after all.
Habits/Experiments
This is the beauty of this. Once you set all that up, you don’t need habits.
You’ve created the environment in which profit takes precedence.
Now go rake that money.
Mike
Today’s inspiration: Why is Andrew Wilkinson Monetizing his Twitter Followers?