Summary Of Profit First by Mike Michalowicz

Profit First by Mike Michalowicz

The GAAP (Generally Accepted Accounting Principles) formula for determining a business's profit since time immemorial has always been:

Sales - Expenses = Profits

While that formula is logically accurate, it doesn't really take human nature into account. Specifically, most small business owners do what can be termed "bank balance accounting" – they look at their bank balance and make decisions based on the balance they see. That relegates profit to an afterthought – something which will be left over at the end of the year with a bit of luck.

The Profit First Accounting (PFA) approach is to flip the standard GAAP formula this way:

Sales - Profit = Expenses

You take a predetermined percentage of profit from every sale first and then use only the remainder to pay for your expenses. Or put another way, with PFA, you secure your profit first and then run your business on the remaining cash.

PFA Take your profit first and then scale your expenses to match that goal

“It comes down to this – do you want to treat your profitability like leftovers, knowing you may only find scraps or an empty plate? Or do you want to get your full, healthy share right up front? I don't know about you, but I want to get my due portion first. I have taught the Profit First system to small companies and big companies, to private companies and even public companies. It works for all of them. And it will work for you. My commitment to you is that, if you follow the Profit First system, your business will become permanently profitable from the moment of your next deposit."