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A review by jakehlebain
Profit First: A Simple System To Transform Any Business From A Cash-Eating Monster To A Money-Making Machine by Mike Michalowicz
5.0
Every entrepreneur and self-employed small business owner should really spend a few hours with this book -- particularly the chart on p. 68. Followed by a 10 minute call to your bank and you should be set up!
What I am taking away:
We all got into what we did for personal freedom and financial freedom. Author Mike Michalowicz asks the questions, "do we have a cash management system in place to make that possible?" For me, that was a resounding N-O. Basically by following the chart on p. 68 based on real revenue (top line revenue - cost of material and subs, or if in a service-based business like myself, just revenue). From there we open 5 checking accounts at bank 1:
1) INCOME (every dollar of sales goes here)
2) PROFIT
3) OWNERS COMPENSATION
4) TAX
5) OPEX (Operating Expenses)
and two at bank 2:
1) PROFIT HOLD
2) TAX HOLD
Every dollar earned goes into your income account and divided to accounts 2-5 according to the percentages found on p. 68. Now, twice a month, you will pay yourself what a fair salary for an employee doing your job would be from the owner's comp account, pay your bills, and transfer all the tax and profit into a separate bank. A lot of this is a behavior. By making the tax and profit at a second bank, we never see/are tempted by the funds. Now, quarterly, you pay yourself a profit of 50% of the total amount in the profit hold account. Spend it on something that makes you happy/personal debt pay down, but NEVER IN YOUR BUSINESS. This is a separate reward for risking capital. Additionally adjust the %'s for each and protentially give yourself a raise if your Owner's Comp is accumulating faster than paying you.
What I am taking away:
We all got into what we did for personal freedom and financial freedom. Author Mike Michalowicz asks the questions, "do we have a cash management system in place to make that possible?" For me, that was a resounding N-O. Basically by following the chart on p. 68 based on real revenue (top line revenue - cost of material and subs, or if in a service-based business like myself, just revenue). From there we open 5 checking accounts at bank 1:
1) INCOME (every dollar of sales goes here)
2) PROFIT
3) OWNERS COMPENSATION
4) TAX
5) OPEX (Operating Expenses)
and two at bank 2:
1) PROFIT HOLD
2) TAX HOLD
Every dollar earned goes into your income account and divided to accounts 2-5 according to the percentages found on p. 68. Now, twice a month, you will pay yourself what a fair salary for an employee doing your job would be from the owner's comp account, pay your bills, and transfer all the tax and profit into a separate bank. A lot of this is a behavior. By making the tax and profit at a second bank, we never see/are tempted by the funds. Now, quarterly, you pay yourself a profit of 50% of the total amount in the profit hold account. Spend it on something that makes you happy/personal debt pay down, but NEVER IN YOUR BUSINESS. This is a separate reward for risking capital. Additionally adjust the %'s for each and protentially give yourself a raise if your Owner's Comp is accumulating faster than paying you.