Profit First by Michalowicz: my thoughts as a CPA
I hang out with entreprenurial gurus. Dan Sullivan, Michael Kitces, Brooke Castillo, Kris Plachy, Amy Porterfield, Tim Ferris... I probably spend more time with them than anyone other than my co-workers and my husband. I take courses from them, interact on social media, listen to their podcasts, and learn and learn and learn. Several of them (maybe all of them?) Have mentioned Mike Michalowicz's book "Profit First" so I picked it up to read.
My first impression is that this is a guy who's your basic White guy who feels quite comfortable believing he's invented the best possible thing without having done any work to learn how other people have done it before. Then he's got the confidence to go proseletyze his life hack. Sure, more power to him. I'm trying to proseletyze my life hacks, too. It's a living. It certainly doesn't hurt to consider his system, but it squicks me out to hear people making a religion of it.
Here's his system: you push all your proceeds into different bank accounts, one of which is your intended profit account. Then when there's a cash crunch you figure out what expenses to cut and/or how to make more money and keep profit and taxes sancrosanct. Quarterly you sit down to pay your taxes and take your profit.
He goes on to talk about how you do this with a series of 4 to 8 separate bank accounts, some of which are at different banks. I get the sense that he spends a lot more time on his deposits than I do. (Whenever I have a pile of physical checks to deposit I use that moment to take my dog for a walk. She gets treats at the bank. Preparing a bank deposit slip is always accompanied by a whining dog anxious to go for a walk.)
His idea to keep profit front and center and try very very hard to reduce expenses is a good one. He cites a story about a lawn guy who expanded unprofitably to add roof work: new tools, lost time... his idea is that the lawn guy would have been better to stay in his lane.
It's a fairly complex system to operate with budgets for various things (I'd have called them envelopes.) I truly like the RIFA "required income for allocation" as a concept, though: it basically tells the rainmaker "go make this much money" and that will make everything else work. I like measurable attainable goals like that.
He gave a rule of thumb about whether you can afford a new employee: basically your company should generate between $150 and $250K per employee. So as I stand right now with 3 FTEs: I should be grossing around $600K. (I'm at maybe $450K, but we've got senior professional, junior professional and admin help: it's more like one get $225, one gets $100, another gets $75 and the rest is overhead.) Just for comparison, the old rule in accounting and law is that you bill out a staff person at 3x what you pay them: 1/3 is for overhead and 1/3 is for owner's profit.)
The concept here is that I need to step back and focus more on expenses - doing more with fewer resources - and increasing profit - getting more in the door. I agree with these, both.
He created a membership group, https://profitfirstprofessionals.com/ and suggests you hire them to implement this. They're out there in podcasts proseletyzing it. For example, Amber Duggar was on Amy Porterfield's. https://www.amyporterfield.com/2018/10/232/
Amber got into YNAB right away, which is, phew, the answer that ought to have been in Profit First. All those ridiculous separate accounts! No! (Although I do still use a separate bank account for quarterly tax and 401(k) escrow.) https://www.youneedabudget.com/
Noting because I came across it writing this blog: https://www.budgetwithbuckets.com/ as an alternative to YNAB
https://mikemichalowicz.com/profit-first/
Noting also because it's interesting: he apparently works with a speaker's bureau, https://goleeward.com/
My first impression is that this is a guy who's your basic White guy who feels quite comfortable believing he's invented the best possible thing without having done any work to learn how other people have done it before. Then he's got the confidence to go proseletyze his life hack. Sure, more power to him. I'm trying to proseletyze my life hacks, too. It's a living. It certainly doesn't hurt to consider his system, but it squicks me out to hear people making a religion of it.
Here's his system: you push all your proceeds into different bank accounts, one of which is your intended profit account. Then when there's a cash crunch you figure out what expenses to cut and/or how to make more money and keep profit and taxes sancrosanct. Quarterly you sit down to pay your taxes and take your profit.
He goes on to talk about how you do this with a series of 4 to 8 separate bank accounts, some of which are at different banks. I get the sense that he spends a lot more time on his deposits than I do. (Whenever I have a pile of physical checks to deposit I use that moment to take my dog for a walk. She gets treats at the bank. Preparing a bank deposit slip is always accompanied by a whining dog anxious to go for a walk.)
His idea to keep profit front and center and try very very hard to reduce expenses is a good one. He cites a story about a lawn guy who expanded unprofitably to add roof work: new tools, lost time... his idea is that the lawn guy would have been better to stay in his lane.
It's a fairly complex system to operate with budgets for various things (I'd have called them envelopes.) I truly like the RIFA "required income for allocation" as a concept, though: it basically tells the rainmaker "go make this much money" and that will make everything else work. I like measurable attainable goals like that.
He gave a rule of thumb about whether you can afford a new employee: basically your company should generate between $150 and $250K per employee. So as I stand right now with 3 FTEs: I should be grossing around $600K. (I'm at maybe $450K, but we've got senior professional, junior professional and admin help: it's more like one get $225, one gets $100, another gets $75 and the rest is overhead.) Just for comparison, the old rule in accounting and law is that you bill out a staff person at 3x what you pay them: 1/3 is for overhead and 1/3 is for owner's profit.)
The concept here is that I need to step back and focus more on expenses - doing more with fewer resources - and increasing profit - getting more in the door. I agree with these, both.
He created a membership group, https://profitfirstprofessionals.com/ and suggests you hire them to implement this. They're out there in podcasts proseletyzing it. For example, Amber Duggar was on Amy Porterfield's. https://www.amyporterfield.com/2018/10/232/
Amber got into YNAB right away, which is, phew, the answer that ought to have been in Profit First. All those ridiculous separate accounts! No! (Although I do still use a separate bank account for quarterly tax and 401(k) escrow.) https://www.youneedabudget.com/
Noting because I came across it writing this blog: https://www.budgetwithbuckets.com/ as an alternative to YNAB
https://mikemichalowicz.com/profit-first/
Noting also because it's interesting: he apparently works with a speaker's bureau, https://goleeward.com/