Business Strategy Articles

The Smart Way to Pay Yourself as a Business Owner

If you’re scrambling to make ends meet with your business, it might be time to re-evaluate how you pay yourself. In his book Profit First, Mike Michalowicz shows you how to do that. Some might think his approach is crazy, but it can revolutionize how you understand your business and its expenses.

The Profit First Formula

Most business owners wait patiently to see what profit is left over after paying all the monthly business expenses before paying themselves. Instead, Michalowicz recommends separating the expected profits into separate owner checking accounts before deducting expenses. That’s where the title Profit First comes from. 

Usually, the formula for success is sales-expenses = profit. However, in Profit First, Mike Michalowicz flips the script. His formula for success is sales-profit = expenses. 

Most entrepreneurs think this is crazy. However, the strategy makes sense when you consider his argument. You’ll permanently settle for less if you wait to pay yourself until all your expenses are paid. But, on the other hand, if you pay yourself first, you’ll be forced to reconsider your costs and find creative ways to make ends meet. 

Profit First Book Review

In Profit First, Mike Michalowicz breaks down some of the critical components of a profit-first mentality. Many business owners make the mistake of thinking that growth will lead to increased profits, and some might be right. However, profit is essential regardless of the size of your business for it to be sustainable. 

It would be best to see a profit from your business efficiently. When business owners prioritize growth over profit, they run up more expenses to seek more sales. But where does it end? Is there ever a point at which a business has grown enough? What if you could see higher profits without increasing your business significantly than it already is? 

By depositing your expected profits before paying off your expenses, you’ll need to make do with less. Keeping the business afloat will require you to find ways to cut costs and make the most of your current money, not the money you can expect to make down the line. This mentality will help you keep your business streamlined and eliminate unnecessary costs.

When you pay off your expenses before collecting a profit, you signal to yourself that your needs come last. However, the business can’t flourish if you struggle to support yourself and your family. By putting profit first, you’ll have less money to pay your expenses, but you can make do with less more quickly than you think. 

Figure out the aspects of your business that make money and cut out the things that don’t. You’ll be amazed at how many “necessary” expenses are not only superfluous but can cost you money in the long run.

The Profit First method might not be for everyone, but it’s worth considering to give you a new perspective on your profits and expenses. If you enjoyed this Profit First book review, click on my contact form for a complimentary coaching session to work on implementing the Profit First system in your business.

Coach Dave

 

10 CRITICAL RESPONSIBILITIES OF A BUSINESS OWNER

LEARN MORE about the book or fill out the form below to download it.

Follow Dave
Dave Schoenbeck is a professional business and executive coach who translates complex business methods, processes, and strategies into actionable plans to dramatically improve financial results. Read more about Dave here.
Follow Dave
Dave Schoenbeck

Dave Schoenbeck is a professional business and executive coach who translates complex business methods, processes, and strategies into actionable plans to dramatically improve financial results. Read more about Dave here.

Share
Published by
Dave Schoenbeck

Recent Posts

Don’t Procrastinate: It’s Time to Do Company Succession Planning

Business succession planning is preparing your business for an eventual transfer of ownership in the…

3 days ago

How to Turn Your Problems and Obstacles into Opportunities

In business, obstacles tend to appear when we least expect them. We can allow ourselves…

1 week ago

Irresistible Tips on How I Can Identify and Create My Unique Small Business Value Proposition

Does your business have a customer value proposition? Many business owners overlook this crucial step,…

2 weeks ago

How to Protect Intellectual Property as a Small Business Owner

The term “intellectual property” (IP) can confuse small business owners. Your intellectual property is essentially…

3 weeks ago

What do General Managers do, and What are the Roles and Responsibilities of a GM?

When you first start a business, you usually have to be the manager, sales team,…

1 month ago

Why You Should Develop Content Monetization Strategies for Your Business

If you’re not repurposing your business’s online content for monetization purposes, you’re missing out on…

1 month ago