Profit First Book Summary | Cash Flow Management Strategy for Business


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We are out to eradicate entrepreneurial poverty.

Transcription of the above video:

Hey everyone, Abby Johnson here with Matterhorn Business Development. I am joined as always with Greg Winteregg, CEO of Matterhorn Business Development. And today I’m proud to announce that we are officially certified Profit First Professionals.

Now, that sounds really official. What does that mean?

It’s super official. So basically Profit First is a book written by Mike Michalowicz, and it’s a method of cash flow management for business owners to use now. Don’t pause the video. Don’t don’t click away. I promise it’s not boring.

So what this means: Mike Michalowicz is on a mission to eradicate entrepreneurial poverty. It’s a tongue twister, and we are on that mission with him.

Basically what we see is we see too many business owners working their butts off. And we’re helping them grow their revenue some in some cases doubling their revenue, but their own income stays the same they aren’t making enough money. Their employees are making more money than them. They get a profit and loss statement back from the accountant that says “Oh you made this much profit” and the first comment is “where is it?”

So we’re tired of that and we are doing something about it.

We’re going to tell you some of the basic principles of profit first and general overview of how this works.

So first of all, you should get the book profit first by Mike Michalowicz. I can’t even begin to spell that name spell that name. But if you just go to Amazon type in Profit First you’ll find it. All right.

So now the typical business formula is money comes in you pay your expenses and run the company and Then profit is what you have left right after you run the company, right and basically what happens is the money comes in and then the expenses chew up all the money because it goes in a bank account. It all goes into 1 bank account. There’s all your money, you pay your bills and then you’re like cool. I have a couple hundred dollars left, you know, I needed a new computer monitor. So I’m going to use the money to pay for this so I’m going to go and you do that week after week month after month quarter after quarter and at the end of the area have no money, right?

But what happens from an accounting standpoint is you get depreciation of your computer and depreciation of your equipment. And so now you show a profit but all the bank accounts are at 0 right. So what Mike has done is actually quite genius. He switched the formula. So here’s the formula: the money comes in the profit comes out first, and you run the company with the money that’s left. Hmm.

So money comes in you take out profit, you take out owners pay, you take out taxes, and then there’s money left and the percentages are all laid out in the book, and we’re certified now to help you with those percentages, but then the money that’s left is all you have. So what that means is if you would like to have the Swanky digs and an office for two thousand dollars a month if you’re taking the expenses out first you go. “Oh look we have to pay $2,000 a month, but if you take out all of your other profit taxes Etc, all we got is 500 bucks. We’re going to wait on the Swanky digs.”

To be clear that never that does not mean that you pay yourself and then you don’t pay your staff. I actually know, I’ve seen it before and it makes me very angry and I just want to be clear that that is not what this is promoting or what we at Matterhorn promote. There are ways to deal with that if you can’t pay your staff, but unfortunately most of the time it’s the owner that isn’t getting paid and that’s what this helps handle.

We just met with somebody here a few weeks ago, companies been in business for a year. They’re all excited. They’re making a profit there’s the owner and to staff but the wife is upset because the staff are getting paid more than the owner right the owners putting in 12 14 16 hour days. So here’s the concept behind it. If you only have this much money left for expenses, then you have to get more creative. If you’re if you have all of the money and you’re taking the expenses first, you can be kind of lazy. You can be a spendthrift you can be sloppy and then here comes all of the the money’s going out of the account. There’s nothing left for profit.

Now. Mike has a really great analogy in the book that Abby’s going to tell you about.

So the analogy is with a tube of toothpaste. So we all know you get a fresh tube of toothpaste and you just kind of grab it and you squeeze it on your toothbrush. You’re like mmm. All right but it falls in the sink. So it falls in the sink and you’re like, yeah, whatever squeeze some more on there. No big deal. But what happens when your toothpaste low, is you’re squeezing your having a squeezing up the end. You’re rolling it up. You’re really trying to push every little. And I know I sometimes I will be like, I should be able to get by with that much. Yeah, that’s fine.

So the idea is that the more there is the more is going to be used. So if you are lowering the amount of money in that operating expense bank account, then you are going to have to get creative. You’re going to start calling your suppliers and negotiating you’re gonna finally go through and probably cancel online subscriptions that you don’t actually need and that you don’t need right right the five Squarespace accounts that are actually doing anything for you. Etc so the idea behind this is also very similar to the envelope idea.

So that’s the idea that you take your money and you put you have a food envelope. You have your house envelope. You have your fun envelope and what’s ever in that envelope is how you spend your money. So you get so with Profit First that is done just with bank accounts the opening various bank accounts and dumping these percentages into those accounts.

So the money comes In and then there’s an account for profit which is going to be 5 or 10% depending on the industry and depending on the revenue in the company. He has all the formulas there. And so there’s the profit account. There’s the owners pay account. There’s a tax account and all the money from what comes into the checkbook goes into these accounts and then whatever’s left that goes into operating expense, right? So the minimum would be five bank accounts and believe me. it’s not that hard to manage Five bank accounts.

How many of you actually look into your QuickBooks and look to see where your bank account is at and how many checks you’ve written yada yada yada. Probably not many. I do but that’s because I do the bookkeeping but most people just open up their bank account and say “oh that’s what I have in my account. That’s what I can spend” and that’s part of what also this helps with is you can just look at your bank account on your phone and know what you’re allowed to spend that week or that period.

And I I’ve done this for years. I did this in my dental practice and I got a report every week for my office manager had this much in reserves had this much in the building fund. I had this much in the tax account. I even had a Corvette account to buy my first Corvette and I paid all the taxes on April the 15th and I was ten thousand short in the Corvette account to go get my car well glory be I had 10,000 left over in the tax account. That’s like my refund. So I went and got my car. So it is like the envelope system and I know it sounds complex. But here’s what we’re going to leave you with.

We we always want to leave you with a plan. You probably already have an account to savings account or something. So all the money is going in what I want you to start doing this week is take one percent of whatever comes in and put it into that account and just pretend like it’s not there. It’s not there to blow, just start accumulating.

Buy the book immediately. It’s going to come to you in a few days, but you will already start you’ll have $10 $20 $100 or more into that profit first account.

So We are out to eradicate entrepreneurial poverty. We highly recommend you buy the book and if you need any help, then we’re absolutely here to help you as certified profit first professionals so we can help do a full profit assessment and rollout plan for you. You can just read the book and go ahead but we have extra knowledge and experience now that we can use to help help you implement this so that you aren’t going 0 to 60 right away. Do it on a nice gradient and get you taking home the money. You should be taking home.

Take your profit first. We’ll see you next time.