082: Why the traditional profit formula is dead: unless you put your profit first — you risk going broke (w/ Mike Michalowicz)

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Mike Michalowicz is an American author, entrepreneur, and lecturer. He is a business author including the popular Profit First, The Pumpkin Plan and The Toilet Paper Entrepreneur. He is a former small business columnist for The Wall Street Journal and the “Business Rescue” segment host for MSNBC’s Your Business. He also hosted the reality television program called Bailout! Mike has founded and sold multi-million dollar businesses and today shares over 25 years of business experience through his books and on stage in front of global audiences .

During this episode we discuss some amazing business concepts with Mike including the following:

How to Differentiate yourself in Business

• Mike has an accounting service business called Profit First. While this is an old established service industry, Mike has found a way to differentiate his business. Mike’s team go out to their over 250 clients as Profit Advisor with a special expertise and focus on not just being compliant with taxes and regulatory obligations but making sure the business is profitable and optimised.
• They focus is pivoted towards interpreting the business numbers and helping business find sustainable profitability
• This is all part of the Profit First philosophy which is detailed in Mike’s popular book Profit First – A Simple System to Transform Your Business from a Cash-Eating Monster to a Money-Making Machine

Profit First System

• It flips the profit formula used in traditional accounting
• Commonly referred to as the bottom line, the standard profit formula is “Sales minus Expenses = Profit”. But this creates a mindset problem where a business owner does not focus on profit but leaves it at the last thing, a by product of everything else and invariably what gets put on the back burner can get forgotten and not prioritised.
• Profit First in Mike’s world has this formula: “Sales minus Profit = Expenses”. So every time you make a sale you allocate a predetermined percentage that you have calculated as your optimal operating profit level, and take the rest as the amount available for all your expenses (not the other way round).

Acquiring the First Customer in Profit First Professionals

• The model is based on finding the right accounting professionals who get trained and accredited under the Profit First Methodology and then operate as advisors under the Profit First banner with a profit share arrangement
• Mike didn’t go out with a know it all attitude but went out to the potential Profit First Professional with the mission first, “we can eradicate entrepreneurial poverty together”
• They understood that this was something new and it needed to grow so whoever joined would join as the first customers, and it would not be easy but that they will be great upside in the future
• They also openly reduced the standard membership fee for the founding members and would bring in the first group of founding members onto the advisory board of the business to help provide real time feedback to help build the business

Marketing Strategy

• Mike went to his existing list of customers and followers who were aware of his brand and his message, and publicly announced that he was looking for bookkeepers and accountants who were interested in partnering on this new project, shared the vision and then established a small community that was focused on this new project.
• Without a personal community, Mike advises that founders should go and look for the community that the target audience is already established (what conferences do they attend, what podcasts are they listening to or what blogs do they follow) and find a way to start contributing and speaking to them there.

The One Problem Every Struggling Business had when Mike was on TV

• Every business that struggled mainly was because they had a spending problem, as revenue went up their expenses went up
• The overarching solution Mike found was for them to anchor in on the profit first concept, find the profit mark they wanted to work with and allocate that as profit and then fit all the expenses into the remaining available funds

Mike biggest lesson now

• The more I am physically in my business, the more I hurt my business!
• Reason being, when the business owner is away, the employees have to figure out how do things on their own
• Sometimes the only way to get out of the weeds is to get out of the weeds!

Mentorship

• Mike is involved in a peer to peer group each month
• Mike believes in mentors, and his biggest investment in that is time, not just money – and it’s not just mentorship in business but also in life in general

Books and how to get the best out of books

• You have to understand your problem and then work out which book or resource is best for you
• Organic marketing, recruitment, scaling – find out what you need and then find the resource

Great books recommended by Mike

• The E-myth, why most businesses don’t work and what to do about it; Michael E. Gerber
• Think and Grow Rich; Napoleon Hill

Best way to connect with Sean

• To learn more about Mike and get access to a treasure trove of entrepreneurial tips, visit www.MikeMichalowicz.com.
• Books: Grab a copy of Mike’s amazing books
  • Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
  • The Pumpkin Plan: A Simple Strategy to Grow a Remarkable Business in Any Field
  • The Toilet Paper Entrepreneur: The tell-it-like-it-is guide to cleaning up in business, even if you are at the end of your roll.
  • Clockwork: Design Your Business to Run Itself
  
  
• Podcast: The Profit First Podcast

Get Your Hopes Up and Maximize Your Dreams!

Cheers,
Davis!
#TheBusinessGeneralsPodcast

Link: Mike’s Wikipedia Bio: