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Episode Info: It’s been a long time coming, but here with me on today’s episode is Mike Michalowcz. If you follow me regularly, then you will have heard me mention his name on multiple occasions. Mike is the author of a bunch of first-class business books, including Profit First and Clockwork, that I highly recommend you read. His Profit First method will simplify your finances and ensure that you pay yourself what you deserve from day one, and never miss a tax payment. It hasn’t been an easy ride for Mike. Despite building two HUGE companies, they were never profitable while he was running them. After making a lucrative profit upon selling the businesses, he lost all his money and his family home when he tried his hand at angel investing. Overcoming this devastating situation was anything but easy, but Mike made it his life’s work to completely rethink the norms of how businesses operate. He realized that profit, commonly seen as the “bottom line,” or the thing that you get if there’s any money left over at the end of the year, should be the first priority. He flipped the script and now teaches business owners how to make money right from the get-go. It doesn’t matter if it’s as little as 1%, you must start paying yourself immediately. Key Highlights of the Episode This episode was extremely actionable and insightful. Here are a few key highlights: Entrepreneurial poverty – Telling your friends that you’re an entrepreneur may give them an image of you being rich and living the high-life. In reality, most entrepreneurs are working all hours, highly stressed and struggling to survive. Mike’s mission is to close this gap. He believes you can live a great life and avoid working 16-hour days if you run things efficiently. Every dollar has multiple responsibilities – You have to pay bills, taxes, your own compensation, and make a profit. Traditionally, profit is calculated by taking your sales and subtracting everything you spend. This makes logical sense. Unfortunately, it doesn’t fit with human nature. Mike recommends flipping the formula. For everything you earn, a certain percentage goes straight to your profit account. Multiple bank accounts – To better align your business finances with human nature, Mike suggests having multiple bank accounts. He recommends that you have separate accounts for: receiving deposits (sales), paying your profit, owner’s compensation (your salary for running the business), paying taxes, and operating expenses. This gives you immediate clarity on how you can use your money. Your operating expenses are what you have to spend in the business after you’ve taken care of yourself. This forces you to try to improve your margins and make more money. Also, in following this method, you always have money available to pay your tax bills. You’re a shareholder in your business - Mike points out that as a business owner, you’re a shareholder in your business. As such, you should be earning and receiving a ...
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