Episode 138: Profit First With Mike Michalowicz

Mike is the author of Profit First, Surge, The Pumpkin Plan, and his newest release Clockwork. By his 35th birthday, Mike had founded and sold two companies - one to private equity and another to a Fortune 500. Today he is running his third multi-million dollar venture, Profit First Professionals. Mike is a former small business columnist for The Wall Street Journal and the former business makeover specialist on MSNBC. Over the years, Mike has traveled the globe speaking with thousands of entrepreneurs, and is here to share the best of what he has learned. Biggest Takeaway You Don't Want To Miss Here's what everyone should do immediately, just these two simple steps. First, set up one savings account and call it "profit." Step two, allocate 1% of your income into that profit account. The magic will start to happen because you're literally taking your profit first. Start today, start slow and you'll grow into the full system over time. Show Highlights Mike lost two million dollars in two years, what was that experience like? [3:20] Why do most entrepreneurs struggle to ever make a profit? [7:15] What is GAAP's "Frankenstein Formula?"? [11:20] What lessons did Mike learn from health and fitness experts? [13:50] What are TAPs? Are they the starting point or end game? [18:30] What numbers should business owners be looking at and doing, every quarter?[20:50] What is Mike's newest book, Clockwork, about? [22:20] Special Offer Get a free copy of Mike's book “Surge” at https://www.mikemichalowicz.com/get-surge-free/ Links Jump & Scale Webinar: jumpconsulting.net/scale Share The Show Did you enjoy the show? We would love it if you subscribed today and left us a 5-star review! Click this link – Bella In Your Business Click on the ‘Subscribe’ button below the artwork Go to the ‘Ratings and Reviews’ section Click on ‘Write a Review’   Transcript: This is episode 138 of Bella in Your Business. This episode is brought to you by my free webinar Jump and Scale Your Business. It's my three-part training series all dedicated to finding and attracting the right kind of people that will scale your business. Did I mention it's free? Listen, you have to attend this if you want to grow your staff, you feel like you're being held hostage, you have high turnover, you feel burnt out, or you're just not seeing the results you want. Join me for this three-part free webinar series. Register now at jumpconsulting.net/scale. That's jumpconsulting.net/scale. I'll see you there. Welcome to Bella in Your Business, where Bella will discuss anything and everything about your pet sitting business to help you land on target. So get ready — Bella's got your chute. Let's jump. Bella: Welcome to Bella in Your Business. My name is Bella Vasta, and if you're watching us live right now, you can see that I have a special guest. I know that you probably heard of Profit First and all the chatter going on in our Facebook groups these days — this whole concept that, my gosh, we should be paid first as business owners. So I decided to ring up Michael, and he was so excited to come on and talk to us. I want to introduce you guys to Mike Michalowicz, the author of Profit First, Surge, The Pumpkin Plan, and his newest release, Clockwork. By his 35th birthday, Mike had founded and sold two companies — one to private equity and another to a Fortune 500. Today, he's running a third multi-million dollar venture, Profit First Professionals. Mike is also a former small business columnist for the Wall Street Journal and a former business makeover specialist for MSNBC. Over the years, Mike has traveled the globe speaking with thousands of entrepreneurs and is here today to share the best of what he's learned. Mike: Thank you so much for having me. I appreciate this. Bella: I am so excited that you're here, especially someone of your magnitude who is flying around and going here, there, and everywhere — and all over the place — that you said yes to come talk to our community. One thing I have to really commend you on is right from the very beginning of your book Profit First, you actually ask your readers to email you — not just once, but multiple times. Mike, not only do you do that, but I don't know if you remember the name Melanie. She's one of our pet sitters. She's been emailing you a couple of times the past few weeks, and she is just so elated. She's like, “Oh my gosh, he actually emailed me back.” If you're watching, you rock. Mike: Yeah, it's a joy. Bella: I think that tells a lot about you. We've got Jill, Jessica, Pam, Michelle, Adrian, Nicole, Erica — a whole bunch of people. I deployed my bot letting everyone know that you're here. This is the book Profit First. I like to listen to books, and Mike even knows that we like to listen to books. Mike, thank you again. Here's another thank you from me. You have a lot of ad libs on the book on tape. A lot of times you don't get that, and you even have special downloads for people that are listening to the audio version. Thank you for just making it easy for everyone. You lost $2 million in two years. What was that like? Mike: We're starting with a knife right to my heart. Totally. Thank you, because I think of all the stuff I've done, this is the most important thing I can share. I sold my second company — it was in computer crime investigation — to Robert Half International, a Fortune 500 company. And I thought I was hot shit. I was like, “I know everything. I'm the coolest guy on the planet.” I was full of arrogance and ignorance. I blew my money on stupid trophies. I went on sabbatical in Hawaii with my family, got a house on a private island, bought cars, a big house — moved into an expensive community. I thought I knew the solution to business: pump and dump. Just grow something fast and sell it. So I became an angel investor and started ten companies. I blew my money in personal spending and in businesses I had no right to be in. They all collapsed. It took me two years to lose my money — actually more than two million. I had to face my family and tell them I lost it all. I was lying to them — not by what I said, but by omission. I’d say, “Everything’s fine, everything’s good,” even though my bank account was shrinking. My mind kept saying, “One big project will come and turn this around,” but it never did. I had to face my family on Valentine’s Day, 2008, and tell them we were about to lose our house — which we did — our cars and possessions — all gone. I had to tell my nine-year-old daughter she couldn’t take horseback lessons anymore because I couldn’t afford the $20. That was the turning point. I went through depression, self-hatred, anger — thinking I was the only one who couldn’t figure out business. I started drinking, which I never did before. It took me two years to recover and rebuild. That’s when I realized I needed to figure out how money really worked — not just for me, but to help others. Bella: Is that the story you tell in Profit First when your daughter brought her piggy bank? Mike: Yeah. We were sitting at the table on Valentine’s Day. Our tradition was to cook together, make posters with “love you” on them, and share them. That day, I told them everything — that we’d lost it all. My daughter ran upstairs, and I thought she was running away. But she came back with her piggy bank and said, “Daddy, Daddy, I’ll support our family. I’ll make us okay.” I’ll never forget that day. That was my awakening. I realized I wasn’t invincible. My family would stand by me — but I had to fix this. Bella: That’s really powerful — and that’s your “why” right there. Mike: Exactly. Bella: You said in your book, “Sales minus profit equals expenses.” Can you unpack that? Mike: Sure. The formula we’re taught — sales minus expenses equals profit — is totally wrong. It tells us profit comes last, meaning it’s insignificant. When we say something comes last — like health, exercise, or profit — it means it can wait. Profit should never come last. It must come first. The correct formula is sales minus profit equals expenses. Bella: I love this so much. Especially in our industry — we’re caretakers. We put everyone else first and often neglect ourselves. Mike: Exactly. But customers want you to be profitable. They’ll never say, “Please charge me more,” but they want you to be reliable, stable, and focused. Profitability allows that. If you’re not profitable, you’re desperate, stressed, distracted — that’s not reliability. Profit allows you to care properly for your clients and yourself. Bella: I love that perspective. You also talked about GAP — the Generally Accepted Accounting Principles — and something you called the Frankenstein Formula. Mike: GAP’s basic formula is sales minus expenses equals profit — which, as we said, is flawed. It leads us to think selling more will fix everything. But Parkinson’s Law says we consume what’s available — so as more money comes in, we spend more. It’s like cookies: put one cookie in front of me, I’ll eat one; put 15, I’ll eat them all. Same with money. As sales grow, expenses grow. It becomes a Frankenstein monster — a business that consumes us. Bella: Wow. You also talk about “small plates.” Can you explain? Mike: Sure. I got this from a fitness instructor who said, “Don’t change yourself, change your system.” We used to eat off plates half the size they are now. Bigger plates mean bigger portions and bigger waistlines. The same applies to business. If you have one big checking account, you’ll spend everything in it. In Profit First, you create smaller “plates” — separate accounts: income, profit, owner’s comp, tax, and operating expenses. You distribute your money intentionally so you know exactly what it’s for before you spend it. Bella: You have no idea how many people in our mastermind are opening accounts right now because of your book! Mike: That makes me so happy — thank you.