Book Review: Profit First by Mike Michalowicz

Mike Michalowicz turns the standard business model formula (sales—expenses = profit) completely upside down in his third book, Profit First. To him, relying on this traditional accounting method is “like telling you to jump off a cliff and flap the living crap out of your arms that only a few people survive doing.” Repeatedly, Michalowicz proves how one simple change, sales—profit = expenses, sends profits through the roof, reduces financial planning time to an hour a week, and achieves growth beyond wildest dreams. A riveting business-type-thriller novel, this book teaches you how to positively change personal and company finances in record time.

Why are we reading this book?

Profit First proves benefits of asking the hard questions, of putting on a different thinking cap, of trusting that doing something different can bring lucrative results. That’s how unusual stories come to life, how new ideas become thriving business ventures, and how the impossible transforms into the possible. That mindset speaks our language. It’s our business philosophy. Michalowicz’s profitability brilliance is the kind of bottom-line thinking that we believe in and celebrate.

Backstory:

Entrepreneurs dream of selling their business to a Fortune 500 company. Michalowicz realized this aspiration to the tune of a $388,000 payoff, which he wildly started spending. Thinking he had the Midas touch, he invested in start-ups to duplicate his new-found wealth. When things went south financially, he shamefully sobbed during a family Valentine’s Day dinner. His 9-year-old daughter left the table and returned with a piggy bank full of her life’s savings. That’s when he realized that cash is king and that nothing else matters.

Challenge:

Beliefs that “bigger is better” or that the business battle cry is “bigger, bigger, bigger” keep profit at arm’s length, at the end of the year, or in some imaginary future time frame. Michalowicz’s response to this all-too-familiar challenge is: “Profit must be baked into the business. Profit isn’t something that waits until tomorrow. Profit is not an event. Profit is a daily habit.” Yes, but how?

Solution:

Use TAPs (Target Allocations Percentages) rather than the generally accepted accounting principles.
Reduce the expenses, not the profit, even when it looks like it can’t be done. Nothing is impossible.
Restrict easy access to profit—“Out of sight, out of mind.”

Solution Steps:

Michalowicz based his core principles of Profit First on successful weight-loss guidelines because “Folks in the diet industry know quite a lot about growing a healthy business” with these nutritional recommendations:

Use of small plates—equates to smaller portions, less calories.
Serve sequentially—eat vegetables first to satisfy hunger.
Remove temptation—stock healthy food and leave the junk food on store shelves.
Enforce a rhythm—eat 5 smaller meals to avoid hunger peaks and valleys.

Summary:

To grow business, the key to success is increase sales and the profit takes care of itself, right? Wrong according to Michalowicz. He claims, “It is one thing to collect money. It is quite another to keep it, control it, or grow it.” Profit First demonstrates plenty of success by fixing the formula that causes eight out of ten businesses to fail from lack of profitability. Like a skilled lawyer, Michalowicz masterfully crafts with proven facts a compelling case for how consistent profitability is synonymous with stability and sanity. Therefore, the jury has made its decision with a unanimous verdict in favor of Profit First.