Its amazed me over the years at just how many people I met in business who didn’t take a living wage or even a profit distribution from their own business. Now of course, given I run a running a small (coaching) business myself, I can see exactly how that happens!
Mike Michalowicz, in his book Profit First, calls this ‘entrepreneurial poverty’. People like you and me who are working 8, 10, 12 hours a day, 6 and 7 days a week, missing the kids plays, or sports games, or parents evenings and who dont get much more than a meagre living from the proceeds. Mikes mission, as detailed in the book, is to stamp out entrepreneurial poverty once and for all, and thats exactly why I’ve signed up to become a profit first professional.
If you are the sort of person with whom this resonates, you’ll appreciate your business is nothing more than an out of control cash eating monster! You work to what Mike calls bank balance accounting and really live cheque to cheque. Despite the fact that most people think entrepreneurs are coining it in and hiding all their riches from the tax man, we are generally struggling to make ends meet while we look after everyone else. Our employees, the tax man and the VAT man to name just a few.
Thats OK, thats what we signed up for, its just that there never seems to be enough to go round at the end of the month, but we make do. Payroll week is a nightmare, and when the accountant drops in the end of year tax bill we dont sleep until we’ve somehow found money to pay it, but still… We’re doing this for the lifestyle right? The freedom? The ‘love’?
Well, maybe its time to start to do it for the profit.
Why are you in business? To make money right? To make a lot more money than you otherwise might? Its funny how that works isn’t it! And how are you going to make money? By having a profitable business. But wait a minute, you might cry, I’m putting money back into my business to help it grow! I’m driving growth by driving revenue! But why is success defined by how big everything is? How many people you employ, or how many offices you run, or how many millions your turn over?
How about defining it by how much profit you make? How little is left to pay on your mortgage? How many holidays you manage in a year? How you’ve been able to help your parents out, or helped you kids achieved their dreams, or helped you achieve yours?
Bigger is not necessarily better. More profitable is better!
If you are living cheque to cheque, or more accurately panic to panic. Or if you finally manage to get ahead, only for a company vehicle to break down, or find a machine that needs to be replaced, then you need the Profit first system. If you are using traditional accounting practices, which leave profit last, bottom of the pile, and its actually putting you out of business, you need the profit first system. If you are in the survival trap of selling new products or services every month just to stay afloat, or hounding your clients to pay early (or finally!) so much so you dont have any time to spend working ON your business not IN your business – You need the profit first system.
What is it? This profit first system? Well, its basically a cash management system that’s based on the way we behave and act, not the way our books and accounts work! Its about the up front apportioning of our revenues into profit and salary, and tax for that matter! Anything in fact that we need to run a healthy business. This is how the systems work, but get in touch and talk to me, and I’l help you get started with it.
The Core Principles of Profit First
Putting profit first in your business and turning your business from a cash eating monster into a healthy and happy place to be for everyone involved, can be seen to be exactly like running a health lifestyle. The booms and busts of faddy diets and bizarre exercise plans are, we know, short term remedies. There is no substitute for the discipline of a balanced and consistent approach.
- Use small plates – cutting down on the calories by serving your food on smaller plates is show by behavioural science to be hugely effective in changing the way we look after ourselves and it applies to our business too.
- Serve sequentially – If you eat your greens first, theres no excuses for gorging on the meat and potatoes or the dessert trolly!
- Remove temptation – Go through the fridge and make sure all those sugary snacks are out of sight and out of mind, apart from regular pre determined treats to make sure you aren’t going to drive your self mad with denial!
- Enforce a rhythm – Eating 5 small, regular meals a day means you avoid those times you get to the table and your ravenous from not having had any lunch, and then make up for it by eating everything in sight!
Now here are the behavioural science bits that equate to the way we run our business.
- Parkinsons law – a statistical law that tells us we use what we have. If you have a deadline of 2 weeks, a job all take 2 weeks to complete. On the other hand, the same job with a deadline of 2 days will also be done on time. Plus no matter how much income you’ll have, you’ll always spend it! Small plates means allocating our money up front, and putting profit first, to make sure there’s enough to do what we need to do, and no more. Less consumptions, less waste.
- The Primacy effect – We place additional significance on what we encounter first. So putting profit first means running the business profitably is the number one aim. In generally accepted accounting practice, we put the expense first, and the profit comes last, which is why we spend all our time focussed on expenses. Unfortunately this doesn’t mean we minimise expenses.
- Removing temptation – Once you have set aside that profit, move it away! Send if off to another bank that you dont have easy access to – this prevents you borrowing from yourself (or stealing your own profit if you prefer!)
- And enforcing a rhythm builds a habit – And habits build winners. And until you get into the habit of taking your profit first, you’ll always be in danger of falling back into the bad ways of doing things.
Obviously, there is a lot more to it than that. At heart, Profit First is a SIMPLE system, but one thats HARD to do. And thats what I’m here for, I’m accredited by the Profit First organisation to run a profit first assessment on your business, build an implementation plan for you to show you the way to permanent profitability, and coach you through that implementation month by month, quarter by quarter, and year by year, to help you banish your entrepreneurial poverty forever!
Drop me an email and I’ll even send you the first five chapters of the book free of charge of course. They cover the whole of the plan in great detail, so you’ll instantly be up to speed on how to do it. That way we can discuss a way forward from a position of us both knowing what I’m talking about!