🏦 Protect Your Profits

Hello! Adam Thornhill here. ‘The Podcast Guy’ saving you 10 hours a week.

Enjoy the 127th Podup, with special thanks to ChatGPT Consulting.

Today, we’ll dive into the best insights and ideas from My First Million.

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Heard of the book Profit First by Mike Michalowicz? If not, you’re in luck. This pod saves you 224 pages of bedtime reading. Join Sam, Shaan, and Andrew Wilkinson as they break down how this book is changing the way they operate their businesses and why you should follow their lead.

Only owners care

If you ask a dinner guest ‘What do you want for dinner?’ they always say steak. Why? Because it’s not their money. The same applies to employees. Sure, they may be incentivized by a bonus, but when they spend $300K of your money, that might only be a $10K bonus for them. They don’t care as much. Every dollar counts when you’re the owner operator.

Andrew Wilkinson

A TL;DR of Profit First

The profit first mentality is to take your gross profit and put that into a new bank account. When you get a bill from a vendor or software, you then have to take the money out of your ‘profit account’ to pay it. 

This stops you from accepting the waterfall of expenses. If I said ‘It’s $8K to use this software’, you’d now say ‘I don’t want to pay for this out of my pocket.’ You start to question whether certain costs are needed.

Keep a month or two of working capital in your main account. You then have way better discipline when there’s not this big balance sitting there. You can always put money back into your main account if needed. There’s no penalty for doing this.

Shaan Puri

Why it matters

The profit first mindset is an amazing forcing function. You have to confront the reality of each expense and ask, ‘Is this truly necessary for my business's success?’ This prudent financial management approach can lead to more strategic decision-making, ensuring every dollar spent is an investment in your business's future.

Next steps

1. Set up a ‘profit account’. Open a separate bank account designated for your profits. This will be your main tool to implement the profit first approach.

2. Determine your profit percentage. Based on your historical gross profit margin, decide on how much to allocate to this account every month.

3. Evaluate expenses. When faced with an expense, consider if it’s worth withdrawing from your profit account.

4. Maintain working capital. Keep a buffer of one to two months of working capital in your main account to ensure smooth operations and flexibility.

5. Adjust and adapt. Regularly review your profit percentage and adjust it as your business grows and becomes more profitable.

Your thoughts?

Thanks to ChatGPT Consulting for making this post possible…

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Quotes were pulled at different points of the episode. Sentences were left out to make the narrative more concise. Podup is not associated or affiliated with any podcast.