The GAAP formula has been around for ever: Sales – Expenses = Profit. Too bad its wrong. The formula rarely results in profit, and by using this formula most entrepreneurs stay stuck in check-to-check businesses. There is better formula one that assures profitability. It’s the Profit First formula: Sales – Profit = Expenses
July 28, 2014
Love the analogy of needing smaller plates. So simple. Spend less than you make. Such an easy concept to grasp. Why is it so difficult to execute?
Great job here, Mike.
Hey Barbara – I think it is actually very easy to execute, because we already do. The problem is we use one big plate, and then easily use everything on the plate. I suggest that we simple setup multiple accounts and divide up income into these accounts as it comes in. Then the money will be on “small plates” and our normal behavior will kick in… using what is made available.
I think we struggle because of Parkinson’s law. The law that says people consume all of what is made available to us. So if we have all the money in one checking account, we spend it all. If we just have some, and the rest is hidden away, we spend all of what we can get access to. Just human nature. We most remove the temptation from ourselves.
Great way to look at a business.
The concept of taking your profit first, owners pay second, tax third, and then EXPENSES. Is a V8 moment…….
Mike,
Excellent speech, I love the profit first formula. I currently teach high school business classes (as well as run a small business on the side), and I will be using your speech and concept in my classes because I strongly believe that your assertion that we spend what we make is absolutely true and a major problem not only for business, but more so for families in general.
Thanks for the speech, I’ll be getting to the book soon!
Paul Limpert
Thanks for sharing – I enjoyed your books as well.
That means a lot to me. Thanks for reading the books!
Mike teaches powerful principles in all of his books. Love his stuff. Thanks for the visual, reading this story in the book, you really made it come to life.
I appreciate you checking it out Tyson. Thanks for the comment!
Mike,
I loved it, especially the innovative point of Parkinson’s Law and the by product of being forced to innovate.
Something to think about. Your story was touching and you wouldn’t be the kind of giving man that I personally know and appreciate without your experience. I further believe your kindness will be passed down to your wife and kids.
All the Best,
Tommy
Thanks Tommy!
This is a great speech. I think it’s a really interesting way of looking at a business, and I agree with the profit first concept. I’m sure it would benefit a lot of people. Thank you!
Thanks Allana
This is a great take on business. I also think taking your profits first is a great plan. I find your story really touching and really motivating – thank you so much.
I love this strategy.
In NLP (neurolinguistics) we talk about what do you want vs. what you don’t want. Profit First supports the simple concept that positive outcomes are much easier for our brains to digest. It conjures up positive sensory responses thus activating our motivational levels. Genius Mike!
Thanks Janet. I find NLP fascinating.
Mike,
That story about your daughter is so powerful, thank you for sharing.
I started listening to The Pumpkin Plan last week and it is hands down the best book on how to grow a business ever written (I have read hundreds of others).
Since last week, I told 3 other friends to buy it. They all did and now we are all helping each other Pumpkin Plan our businesses together. It is so cool it is hard to put it all into words. Thank You for doing what you do, every entrepreneur has to hear your message. Greg
Hi Mike, from the bottom of my heart, I really adore your books and lectures. They help and work. The best wishes and thanks for teaching :))
Great speech.
Thank you for that simple idea. It is really worth spreading one.
Your story gives some kind of motivation everyone needs in order to spend less resources filling the “expensive” plate and gain more profit.
I have a question though.
How can I start paying to myself first and only after that cover expenses? Is it possible to get lack of resources to pay salaries, bills, and cover unexpected expenses?
Thanks a lot.
Mike, thank you for sharing your stories – this is great! I’ve been reading the book, listening on audio, and attempting to implement. My challenge is Overthinking It. This short reminder of Why you came up with it in the first place is the KITA (Axiom Kick in The A**) I needed. Happy New Year.
Mahalo Mike,
Ive read TPE, PP, PF, and now Clockwork. Love them all. Will be getting your newbook when it comes out. My wife owns a Physical Therapy practice here in Hawaii, she was glued to her business working many hours treating, then many more trying to catch up on paperwork at home. PT school doesn’t teach business, so it was overwhelming, never a light at the end of the tunnel. Once she finally shifted her mindset to working on rather than in the business, freedom was within site. Than mind shift was 2 years ago. We are now building her 3rd clinic, have 12 (motivated and happy) full time employees, and working on hiring another 8! Best thing of all is my wife only goes in for about 4hrs per week to host our staff lunches, and that is soon to be delegated. 1 month vacations were laughable before, now 2 months wouldn’t be a problem.
Anyone can do it, your employees are an asset not an expense, delegate to others your team will not only appreciate it, they might just be better than yourself., and seek help/mentor.
Stop over to this rock in the middle of the Pacific, itll be a business write off, we would love to come out and see you.
Aloha Mike🤙🏽,
Gary & Julie
http://Www.moonpt.com
Aloha Gary! The next, next book (after Fix This Next) is coming out in September of 2021. It is titled Different Is Better.
Congrats on your success.
By the way, I have family who live on Lanai.