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HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO
A MONEY-MAKING MACHINE
– SPEAKING NOTES –
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 2
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
THE FRANKENSTEIN FORMULA
• OnedayIhadtherealizationthatIamDr.Frankenstein.Itoocantakeandideaandbringitto
life,andthenquicklycometorealizeIhavecreatedamonster.Acasheatingmonster.
• Theonlywaytosurviveistosellmoreandmore.Growthseemstobetheonlysolution.
But as the business gets bigger, so does the stress. The bigger the business, the more cash
it consumes.
• Itseems,toreallybeprofitable,weneedthatonebigclient,oronebigsale,oroneinvestorto
swoop in and save us.
• Mostentrepreneur’scompaniessurvivechecktocheck.Profitseemstobesoelusive,because
every time sales increase, expenses increase at the same rate.
• Theproblemisnottheentrepreneur,it’stheprofitformulaweallhavebeentoldtouse:
Sales – Expenses = Profit
SALES – EXPENSES = PROFIT WHY GAAP DOESN’T WORK
• ThecoreformulatoGAAP(GenerallyAcceptedAccountingPrinciples)isSales–Expense=
Profit.Itlogicallymakessense,butitignoresthatfactthehumansarebehaviorallyorientednot
logically oriented.
• FewentrepreneursarediligentlymanagingtheirfinancialsusingGAAP.Itrequiresthatthe
entrepreneurunderstandandmanagetheirbusinessbyregularlyanalyzingtheirIncome
Statement,CashFlowStatementandBalanceSheet.Itrequiresthatthosereportsareanalyzed
regularly,minimallyonceamonth,ideallymorefrequently.Butentrepreneursdon’tdoit,as
“logical” as it is, but we do have another habit... we look at our bank balances constantly.
• Mostentrepreneursmanagethefinancialaspectoftheirbusinessusing“bankbalance
accounting.” We look at our bank balance and make a determination of how healthy our
business is based on the balance. A big bank balance and we feel confident. A low balance and
we go into panic mode to sell like mad and collect money any way we can.
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
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These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
DON’T CHANGE YOUR HABIT (YOU CAN’T) CHANGE THE STRUCTURE AROUND YOU
• Changingourownhabitsishard(somewouldargueimpossible).Justaskasmoker.Logicallyit
is one of the most life threatening routines we can have. Yet the habit continues. Often the only
waytochangeahabitisbecauseofacatastrophicevent(forthesmokeritcouldbeaheart
attackorstroke).Otherwisethehabitcontinues.
• Buthabitscanalsobechanneledanddirected,makingthatformally“badhabit”your
biggest ally.
• Insteadofstoppingyourhabitof“bankbalanceaccounting”(checkingyourbankaccount
regularlyandmakingfinancialdecisionsbaseduponwhatwesee)theprocessofProfitFirst
leverages it and makes it your biggest ally.
THE CORE 4 LESSONS FROM THE HEALTHY DIET INDUSTRY
• USE SMALL PLATES – The normal habit of people is to serve food that fills up their plate and
then to eat everything on the plate. So instead of trying to change the “fill up the plate and eat
it all” habit, simply reduce the size of your plates and continue your habit. A smaller plate will
automatically leverage our established habit, and reduce our calorie intake. We lose weight.
• EAT VEGETABLES FIRST – Most people eat the meat and potatoes first. The vegetables are
put aside to “eat last.” But the person eats all the meat and potatoes first and then, feeling full,
doesn’teatthevegetables.Yet,ifwesimplyateaservingofvegetablesfirst,wewouldgetall
thevitaminsandnutrientswhilealsofillingupourstomachssothatwedon’tgorgeonthemeat
and potatoes.
• REMOVE TEMPTATION–Youwon’teatdesertifitsnotavailabletoeat.Butthatdesert
tray waved in front of you makes it so easy to have it “just this one time.” To avoid eating junk
food, the best strategy is to not have access to it in the first place. As they say, out of sight out
of mind.
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 4
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
• ESTABLISH AN EATING RHYTHM – Most people eat either too infrequently or too frequently.
Thefolkswhoeattooinfrequentlyoftenplantoeatthreemealsaday(breakfast,lunchand
dinner),andwilloccasionallyskiponeofthemealswhentheyareinarush.Theresultisthat
they feel intense hunger and then overeat during the next meal. Other people are the constant
snackers.Foodisalwaysinarmsreachandtheysnackanytimethefoodispresent.Ineither
case, to person consumes to many calories and puts on more and more weight.
THE CORE 4 BUSINESS DIET LESSONS OF PROFIT FIRST
1. USE SMALL PLATES
• Mostbusinessownershaveonlyfewaccounts(bigplates)fortheirbusiness.Theyhavea
operating account where deposits come in and payments go out. They may have an employee
payroll account and a savings account. But regardless of what accounts they do have, typically
the majority of money flows in and out of a single, big plate, operating account.
• Sinceentrepreneursdobankbalanceaccounting(welookathowmuchmoneyisavailablein
theaccountandtakeactionsbasedonwhatwesee),weneedtoallocatemoneyintodifferent
accounts(smallplates)whichspecifyhowthemoneycanbeused.
• Thisisgrandma’soldenvelopesystem.Grandmawouldget$100anddividethatmoneyupinto
differentenvelopesfordifferentpurposes.The$100wouldcomein,andimmediatelygetdivided
up:1.$10forvacation2.$35forgroceries3.$15forclothing4.$25forhomeexpenses5.$10
to“giveback”6.and$5for“funmoney”
• Grandmawouldalwayshaveenoughmoneyforeveryaspectoflife...shewouldjustgotothe
rightenvelope.Andifthemoneywasn’tthere,itdidn’tmeantherewasn’tenoughmoney,it
meantitwasn’ttimetospendityet.
• Inourbusinessweneedtohavesmallplatestoo.Minimallyweshouldhave4smallplatesand
1servingtray.Thesmallpatesare1.ProfitAccount2.Owner’sPayAccount3.TaxAccount4.
OperatingExpensesAccount.AndtheservingtrayistheIncomeAccount.
• AllinboundmoneygoestotheIncomeAccount.Thisaccountisonlyforaccumulatingdeposits.
ThenthemoneythathasaccumulatedintheIncomeAccountisperiodicallyallocatedtothe
“small plate accounts” based upon predetermined percentages. A percentage of all the money
intheIncomeAccountgoestotheProfitAccount,thenapercentagetoOwner’sPay,etc.
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 5
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
• TARGET ALLOCATION PERCENTAGES (TAPS) – Based upon your businesses Real Revenue
(thisisyourcompany’stotalincomeminusmaterialcostsandoutsidelabor–similarto,but
notthesameasGrossProfit),yourcompanyshouldtargetallocatingacertainpercentageof
theIncomeAccounttothedifferentsmallplateaccounts.Gotohttp://MikeMichalowicz.com/
Resources to download a chart with the TAPs percentages.
• TAPsisatargetallocationpercentageandnotthestartingpointpercentagesforyourbusiness.
The TAPs are for very healthy companies, and just jumping to those percentages can be far to
fastofanadjustmentforyourcompany.Insteadstartatasmallerpercentage(perhapsstart
allocatingonly5%or1%ofyourIncomeAccount)toProfitandotheraccounts,andevery
quarter increase that percentage.
2. EAT VEGETABLES FIRST
• Asyoustartallocatingmoneytodifferentaccounts,manybusinesseswillfindthattheamount
ofmoneyavailableforOperatingExpensesis60%,50%,40%orevenlessofthetotalIncome
Depositsthatisavailable.
• Theentrepreneur,inthiscircumstance,willfeelextremepressuretoreducecostsandexpenses
(thisiswhatyouwanttodo),butfeelthatitmaybebestto“borrow”fromtheProfit,Taxor
Owner’sPayaccount...inotherwords,toskipeatingthevegetables.
• Whenthereisn’tenoughmoneyinyourOperatingExpensesAccounttocoveryourbills,
youmayNOT“borrow”fromyourotheraccounts.Instead,thisisyourbusinesstellingyou
(bettersaid,screamingatyou)thatyoucannotaffordyourexpenses.Youmustbecomemore
innovative. You must cut costs and find ways to get the sames things done at less cost. And you
must extract all the value out of your expenses.
3. REMOVE TEMPTATION
• Thequick(andtasty)fixtonothavingenoughmoneytopayexpensesittotakethemoneyfrom
ourtaxaccount,profitaccountorowner’spayaccount.Ifthemoneyintheseaccountsremains
at the same bank as where you have your Operating Expenses, it is too tempting and easy to
transfer the money.
• SetupaProfitAccount,TaxAccount(andeventheOwner’sPayaccountifyoufindyourself
“borrowing”fromtheaccounttopayexpenses)atasecondbank.Thenwhenyoudoyour
percentageallocationsfromtheIncomeAccount,andmovethemoneyintothese“smallplate”
accounts, next transfer all the funds from the Profit Account and Tax Account to accumulate at
the second bank.
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 6
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
• Takestepstomakesurethatyoudon’thaveeasy/convenientaccesstothesecondbank...you
just want to accumulate the Profit and Tax money here and then disburse it on a quarterly basis
(explainedintheEatingFrequencysection).
• Destroyyourcreditcards,whichisanothermassivesourceoftemptationandreplacethemwith
debit cards.
4. ESTABLISH AN EATING FREQUENCY
• Mostbusinessownersmanagetheirmoneytofrequently(theypaybillsandthemselves
sporadically,whenevertheyfeeltheyhaveenoughmoney)ortooinfrequently(theywaituntil
theyareinapanicandneedmoney,oravendorhasstartedcollections).Insteadyouneedto
getintoa10/25Rhythm
• The10/25Rhythmhasusdisbursingmoneytwotimesamonth,onthe10th(orthenearest
businessday)andthe25th(orthenearestbusinessday).
• The10/15RhythmallowsmoneytoaccumulateintheIncomeAccountoverafewweeks
time.Youstillmakedepositseveryday(orasfrequentlyasmoneycomesin),butitsimply
accumulatesintotheIncomeAccount.Byallowingmoneytoaccumulate,ourhabitofBank
Balance Accounting will give us a keen awareness of the natural cash flow of our business. We
seemoneyaccumulatefortwoweeks,itthenget’sallocatedcompletely.Thenitaccumulates
over the next two weeks and then allocated completely. This pattern continues into perpetuity,
and we get a keen understanding of our cash flow.
• Onthe10thallthemoneyintheIncomeAccountgetsallocatedtothedifferentsmallplates
accounts,baseduponthepercentagesyouhavepredetermined(ultimatelymovingcloserand
closertotheTAPs).
• Thenonthe10th,themoneyallocatedtotheProfitandTaxaccounts,getsimmediately
transferred to the “temptation removed” accounts at the second bank. On this day, all the bills
that are due are paid from Operating Expense. As shared before, if there is not enough money
intheOperatingExpensesaccount,thisitthebusinessstatingitcan’taffordtheexpensesand
they need to be cut.
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 7
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
• Thesameoccursonthe25th–AllocateallfundsfromtheIncomeAccount,removetemptation
and pay expenses from the Operating Expenses account.
• Onaquarterlybasis,fromtheTaxAccount(atthedirectionofyouraccountant–notethatyou
maywanttoconsideraProfitFirstProfessional,anaccountant,bookkeeperorotherfinancial
expertthatiscertifiedinProfitFirst)youwillpayyourquarterlytaxestimates.
• Onaquarterlybasis,yourcompanywilltakeaprofitdistribution.50%ofthemoneythathas
accumulated in the Profit Account will be taken as a profit distribution to the owners.
• TheprofitdistributionyoutakeisforYOURpurposes.Celebratewiththemoney,useitforyou...
don’tuseitto“plowback”intothebusiness,sincethatdefeatstheentirepurposeofProfitFirst.
ACCOUNTABILITY GROUPS
DESTROYING DEBT
THE PROFIT FIRST FORMULA
• Sales–Profit=Expenses,mathmaticallyitisthesameastheGAAPformula.Butfortheway
humansbehavethisisfarsuperior.InthiscaseExpensesisthe“leftover”notProfit.
• Ifyouremembernothingelse,rememberthis:Profitfirst,always.
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 8
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
APPENDIX
INCOME V. COST
• Inmostentrepreneurialbusinessesastheincome(sales)increase,spendingclimbsatanear
identicalrate.Thebusiness’ssurvivalischeck-to-check.
• Ifsalesdropdramatically(e.g.loseamajorclient),costsdropmuchslowerandtheresultis
significant loses
TIME
$
Income Cost
SURVIVAL TRAP
POINT B(Vision)
POINT A(Crisis)
Cover this month’spayroll with an
unfit client
Offer new product to make
immediate revenue
Hire an expertto instantly expand
service offering
Focus all effortson sales to
get fast money
Do the workyourself becauseno one else can
do it as well as you(plus you save money)
Take on unfit project tocover this month’s payroll
Run a last minute promotionto generate quick cash
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 9
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
INSTANT ASSESSMENT
• Immediatelyassesswhereyourbusinessstandstoday,andwhatyouneedtochangetobecome
aProfitFirstbusiness.
Top Line Revenue
ACTUAL PF%
100%
PF$ THE BLEED THE FIX
Material & Subs
Real Revenue
Profit
Owner’s Pay
Tax
Operating Expenses
TARGET ALLOCATION PERCENTAGES (TAPS)
• Usethetargetpercentagesbelowtodetermineyourallocationtargets.
• SetTAPsasyourgoal,butadjustyouractualallocationspercentagesinsmallincrementsto
avoid changing too much, too fast.
Real Revenue Range
A B
100%
$0 – $250K $250K – $500K $500K – $1M $1M – $5M $5M – $10M $10M – $50M
100% 100%100% 100% 100%
5% 10% 10%15% 15% 20%
50% 35% 10%20% 5% 0%
15% 15% 15%15% 15% 15%
30% 40% 65%50% 65% 65%
C D E F
Real Revenue
Profit
Owner’s Pay
Tax
Operating Expenses
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 10
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
SAMPLE BANK ACCOUNTS
• AsampleofaProfitFirstbankaccountconfiguration.
• Percentagesorfixeddollaramountsareintheaccountnametoindicatetheallocationamounts.
• Asecondbank(Bank2)isalsosetuptotransferProfit,Taxandother“temptationremoved”
accounts.
Income
BANK 1 (For My Business Operations)
ACCOUNTNAME BALANCE
Profit (15%)
Tax – Gov’t Money (15%)
Operating Expenses (39%)
Petty Cash ($75)
Employee Pay ($1,500)
Reimbursement (0%)
Drip (0%)
**3942
**2868
**4365
Owner’s Pay (33%) **0407
**5764
**4416
**8210
**4247
**8264
$13,432.23
$0.00
$0.00
$4,881.88
$3,767.18
$142.66
$1,845.46
$212.58
$27,500.00
Profit
BANK 2 (So My Temptation Is Removed)
ACCOUNTNAME BALANCE
Tax – Gov’t Money
**1111
**2222
The Vault **3333
$14,812.11
$5,543.91
$10,000.00
PROFIT FIRST – HOW TO TRANSFORM ANY BUSINESS FROM A CASH-EATING MONSTER TO A MONEY-MAKING MACHINE
| 11
These notes are a product of Mike Michalowicz and his companies. These notes are strictly for your own
personal use. Additionally, you are welcome and encouraged to freely share these notes, but they must
remain in their entirety and original format and may not be altered in any way. You may not copy, duplicate
or utilize these notes, in whole or in part, for any other purposes than stated above. Please contact the
Offices of Mike Michalowicz with any questions. ©2008-2014 Mike Michalowicz | MikeMichalowicz.com
CONTACT MIKE
MIKEMICHALOWICZ.COMTWITTER.COM/MIKEMICHALOWICZMIKE@MIKEMICHALOWICZ.COM888-244-2843
THEOFFICESOFMIKEMICHALOWICZ ATTN:CarlySimon POBox73 MountainLakes,NJ07046
READ ONE OF MIKE’S BOOKS
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PROFIT FIRSTThe success formula for business has alwaysbeen:Sales-Expenses=Profit.Theproblemis,it’swrong.Youareabouttodiscovertheprofoundlysimple,ProfitFirstFormulathatensuresyourbusinesswillbe profitable from your very next deposit forward.
THE PUMPKIN PLANWho would have thought that pumpkin farmers hold the secret to colossal business growth? By following the simple methods farmers use to grow colossal prize-winning pumpkins you will grow a colossally successful businesses.
THE TOILET PAPER ENTREPRENEURYou are about to discover why the lack of cash, experience and resources are your biggestassets.Whetheryou’rejuststartingout of have been at it for years, The Toilet Paper Entrepreneur is the much needed swift kick in the pants.
Read It Now!
Read It Now!
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PROFIT FIRSTP R O F E S S I O N A L S
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