Mike Michalowicz explains why Profit First requires separate bank accounts, not spreadsheets. The system relies on behavioral intercepts: 90-100% of entrepreneurs check their bank balance daily or weekly, so money must be physically separated into accounts to make good decisions automatic.
Hi, I'm Mike Michalowicz, the author of Profit First, and I am so happy that there's over 500,000 businesses that have implemented Profit First and is growing daily. Unfortunately, there's some myths that need to be busted. One of the most common myths I hear is that Profit First can be done on spreadsheets, or you can do it in your accounting system. You don't need to do it banks. Well, if you hear that, that person explaining that clearly doesn't understand behavioral intercepts because Profit First is a cash management tool that works with our natural behavior. I've surveyed hundreds of thousands of entrepreneurs, both formally through traditional surveys and also at conferences I speak at, just by the raise of hands. And I ask people, entrepreneurs, how often do you check your bank account balances to see how much money you have and make financial decisions around it? 90% of the hands go up. Sometimes 100% of the hands go up. Most entrepreneurs are checking their bank accounts weekly, monthly, daily. I mean, are you? It's likely you are. And based upon the money we see there, we make decisions. That's why the Profit First system must be set up at your bank. What we do is we pre-allocate money to its intended use. So now you get to continue that behavior of log into your bank account and you see what the money's intended use is. For years we've been told, never look at your bank account. Log into your accounting system, read the income statement, the balance sheet, the cash flow statement, tie those in together. Know the operating cash ratio, the inventory turn, all these things. You'll manage your business well. And it's true, you will, but we don't do it. The key is not to change your behavior. The key is to channel your behavior. And that's what Profit First does. So make sure you set up the Profit First accounts at your bank. You'll manage your money better than ever before.
