Profit First by Mike Michalowicz is a book primarily addressed to small business owners. Still, its advice is relevant to personal finances too and thus is a read we recommend to everybody.
The book presents a novel approach to managing business finances. The book’s core concept is simple yet profound: instead of following the conventional formula of Sales - Expenses = Profit, Michalowicz suggests that profit should be the first thing you take out of your business revenue, essentially making the formula Sales - Profit = Expenses. This method forces business owners to rethink their spending habits and prioritize financial health. Mike uses his own experiences and those of other business owners to illustrate how this system can transform a struggling business into a profitable one. His writing style is engaging, conversational, and peppered with real-life anecdotes that make the principles accessible and actionable.
The book is structured in a way that outlines the Profit First method and provides practical steps for implementation. Mike introduces the concept of setting up multiple bank accounts based on their purpose: income, profit, owner’s salary, taxes, and operating expenses. This compartmentalization of funds helps visualize and control where every dollar is going. The book takes the reader through the transition from traditional accounting to Profit First, including how to handle cash flow, manage growth, and deal with debt. The author’s approach is methodical, providing a roadmap that includes specific actions like regular “profit allocations,” which ensures that profit is not an afterthought but a priority.
Even if the methodology was called overly simplistic or rigid by some critics, the lesson is still an important one that bears similarities to personal finances: limit your expenses on what’s left of the income after deducting the profits; in personal finances, this translates to “spend what’s left after you save.”
In conclusion, we recommend reading the book and following its advice, even if not in its most rigid form. Profit in business and savings in personal finances must be a priority, not an afterthought.