How to Overcome Resistance and Evolve as a Business Owner | Insights from Mike Michalowicz

All right.

You're literally my favorite.

Thanks, man.

Yeah, I love it. So Cindy had a great question for you that she just asked me. Cindy's our head sales trainer. If you see her back there in the back, she lost her voice on Tuesday night, so she's doing her best to transcribe. But she said, so when you had the people in Copenhagen that didn't do anything, how did you work with them to try and get them to the point where they're going to start to evolve? 'Cause our whole present, like the whole week what we're talking about here is evolving you as a person, but also evolving you as a business owner. And I think that is such a big factor. Like, it's so hard to go from the one-person shop to the five-person shop to the 10-person. So what did you do in that scenario?

[Speaker] Yeah, so what I found, 'cause I did hang out with some of those people after, and some of those people, a good portion, are still not doing it. This is now, you know, 7 years later, whatever, and I'm still getting messages like, I'm not profitable, I'm, Some of them went out of business. You know, what's this resistance? And what I found is there is comfort in doing uncomfortable and unproductive things just because we do that. So reverting back to the past is very simple. What's gonna happen, for all of our employees right now, there's something going on at the office right now while you're here. They're waiting for the hurricane, I call it. So you're here learning stuff, and there's some amazing speakers. I was going through the list.

[Speaker] Yeah, we did good this time.

[Speaker] You did good, you did good. Your colleagues are sitting at the office right now going, let me tell you what's gonna happen. Tomorrow, the hurricane's gonna come back. Boss is gonna walk in going, this was amazing, I learned so much from Chris, you know. We gotta do this, we gotta do that, there's always amazing things. There's gonna be this storm of ideas. They said, here's how you handle a hurricane, you just bunker down. Because the storm's gonna come with all these great ideas, and within 2 to 3 days, It'll all be forgotten. There'll be some damage we may have to restore, but it'll go back to the way it was. Just hang tight. What happened with these Copenhagen people, and it often happens, is they also were overwhelmed with all the ideas and felt they had to do everything. They didn't cherry-pick the one to do. The biggest mistake is you have 1,000 ideas. The challenge I gave the Copenhagen people, I said, what is the most profound idea you learned here? See that through. And it doesn't have to be profit first, it could be anything. Because what happens is once you see one small thing through to success, it starts changing that process of thinking that staying uncomfortable is comfortable. Actually challenging yourself and seeing results becomes the new habit, and they start transfer— transforming.

So one of the things I talked about in my keynote yesterday was, uh, actively seeking out change. And I think it's a really important thing. It's something that I really push myself to do. So I really like to hear you saying that. Because that's a big problem. You're so accurate. You think about how much of us go back to that place of comfort because it's easy. It's really easy to go back to doing what we do every single day, hunker down when the hurricane's coming.

Yeah.

And, you know, we'll weather the storm, right?

Yeah.

So I think that's really key.

I found this thing called the behavioral intercepts that may also help. So this morning I said I was at the gym. Your crew was there.

Maria said she saw you in the gym.

Yeah, I was all jacked up. I go in there, it's like the most intimidating place. Like, hey, Mike, everyone. I'm like, oh. Like, I've never gotten to a gym where that happens. But I'll tell you how I got to the gym, because I did it last night. I do every night. I take my sneakers and I put them on the toilet seat. It's called a behavioral intercept. I, about 12, 13 years ago, I said—

I think there's a joke there, but—

No, there's no joke. Yeah, yeah. I put my sneakers in the toilet. Yeah. Yeah, because then Maria's like, you smell like shit, Mike. Thanks, Maria. Yeah, well, thank you. Thank you very much.

I'm flattered.

But what— that 12 years ago, I said to myself, my future life and health depends on me exercising now. I need to work out regularly. And I wasn't— I said I'd do it, but I wasn't. Yeah. Yeah. But I asked myself, what's the pattern I have? And I wake up in the morning, go to the bathroom, make coffee, scroll through news, skip a workout. But in that pattern, I said, there's just something I can do to intercept. I put my sneakers on the toilet seat. Like, my wife was not happy, but I did that. And I wake up in the morning, the only way I can use the toilet is by grabbing my sneakers. And there's enough momentum, enough reminder to put on my feet, head over to the gym.

Yeah.

And so last night I was on the toilet seat and I can't not go to the gym. Yeah.

So I actually, in mine, I had to hire a personal trainer.

There's another way.

My trainer comes to my house 5 days a week, beats on the door and says, come on, down my ass. Come on, let's go. So I also have a gym in my garage that I built. So I like did a couple of things. But it's great because that pattern interrupt something to get yourself away from the ease of exit.

That's right.

Now I know we got some questions. You down for some questions? I'm down for it. John, is that where you're standing there? Okay. I'm assuming we turn the mic on to you.

Good.

Hello.

Hey, there we are. Hey, Mike. As I said to you earlier, I'm on a binge of your other books. So thank you for all of those. I want to say two things for people who aren't doing it. We started Product First about two years ago. We're not 100% there. We're working on it, but it has been life-changing for us in the sense that— 2 stories that have come out of profit first, then I have a question. One, 6 months in, my wife's a CFO and I miscommunicated. This happens. And we had a big tax bill, a sales tax bill. And she didn't know it was coming because I forgot to tell her I spent a month, you know, all that. We had money in the tax account to cover that big sales tax bill.

Boom. Congratulations.

And previously, 6 months prior, we would have been like, what the hell are we going to do?

Discount, sale, collections calls.

We don't know. I mean, we would have been at that point in our business having really big struggles. And then out of our profit this year, we paid all of our employees bonuses and we had A lady who really needed help at our church and we as owners made the decision to pay and help her with her rent out of our profits.

That's amazing. Congratulations. Amazing.

So for us, that was really valuable because one of my goals, one of my primary drivers for starting a business was to be able to find ways to help nonprofits or help people. And so where we're at in our business, still small, just being able to do that was—

And that's on a partial Profit First implementation. Yeah. That's amazing.

Yeah. We're good on like we're 15% and 2% in profit. That we're doing the really big important things.

Good.

And we're paying ourselves and whatnot.

Well, dude, you're the— everyone else, if you're not doing Profit First, hang out with him.

So here's my question, an area where my wife and I, who's home with our baby, are talking. Um, I think our biggest challenge to getting our profit up to where we want it at 15% instead of like, I think, I don't know, or our, our personal up.

Yeah.

And, and then is, is we're subscription-based. Like, how many people pay monthly ridiculous bills to Pax8 and other companies, right? And so it's, we get in this place with OpEx where we're like We're tight and I think the— and we're becoming more profitable as we've raised our prices. Would your recommendation be that we slowly, as we grow our clients, just start to change those percentages out? Or how do we make that? Because I don't like— obviously it's hard to make big giant changes and I'm still— I'm 2 years in and I'm still like trying to tweak those.

So a couple questions. What's your revenue right now? $650,000.

Okay.

What's the average revenue per client? What's your average client revenue?

A couple grand.

But I have one giant win. A couple grand. That's fine. And so a couple grand. And what do you want your revenue to be?

I want to be—

What would be the next big step for you?

A million this year.

Million. Okay. Yeah. So there's a technique called the 100 client rule. It's a real good rough rule of thumb for setting your pricing. And what it is, is whatever your target revenue is, divide that by 100, because almost all service organizations have up to 100 core clients. So if you want to do $1 million in revenue, we divide that by 100 clients, that's $10,000 in revenue. But I heard you're billing $2,000 per client on average, so there's a discrepancy. So the first thing I would do with your business is say, okay, we're not billing enough, we gotta get better quality customers. So it's actually a customer shift as opposed to trying to squeeze out costs and stuff like that.

Right.

That's where I would start for sure.

Okay. Yeah, we're definitely better than we were a year ago, but we're still—

and you have some clients right now that are doing $10,000, a couple handful.

I've got one that's $25,000.

Yeah, right. So you've proven you can handle a $25,000 client. There's this concept, it's the Pareto principle, the 80/20 rule. 20% of our revenue or 80% of our revenue is generated from 20% of our clients. Chances are that plays out in your business. The discipline of growing a bigger business is actually the discipline of removing the small customers. Let me ask another question. Those low customers that generate $2,000 or less, you know, that's the average. Say someone that generates, you probably have one that generates $1,000 a year or something. Are any of them a total pain in the ass?

Yeah, I've been removed. I've been, yeah, that's exactly it. Not as many as there were last year.

Okay, but there's some, there's some.

I've exchanged quite a bit this year for better clients. So yeah.

I'm actively investing in IT companies, ironically. I'm looking for some. And what we do in that scenario is we look at the lower-hanging customers, and we say, we gotta get them out, because they are costly, mostly around the emotional consequence, but also financially. You generate very little revenue, and you probably give them the same amount of service and cost, so you may be actually even losing money on those low customers. We generally will start off with those low customers, get rid of a few to open up space for the bigger customers, We'll target $10,000, and that's how we start the transition. Okay. Yeah.

Thank you.

You're welcome.

And I think one of the challenges with this industry— you've been around MSPs for a while now— one of the challenges with this industry is most of the owners, the owner-operators, start out as techs, and they're scrambling for everything they can get.

Yeah.

And it's like, I don't want to say this desperation mode, but we're, you know, we have to learn how to sell a different way.

Yeah.

And we have to learn how to grow and evolve ourselves. I talked a lot about this in my keynote yesterday. And it's one of the things that we do in our program, but it's so difficult to get rid of some of that crap, I guess.

Yeah, yeah, and there's an emotional attachment, and there's this belief that revenue brings health to a business, but it doesn't. Sales bring stress to an organization. The more you sell, the more obligation you have. That's stress. So we have to balance out with health, which is profitability. So sales and profitability have to work in equilibrium.

And you have to have enough discipline to say, okay, that's a crap client, And part of the other problem, Cindy, we talk about this a lot, one of Cindy's things that we do in our sales coaching is you have to know your numbers and that includes profitability per client and all these other pieces. So as you grow, as you scale, as you mature down the path, think about how important knowing those numbers are, identifying the crap and then getting rid of that stress.

Right?

Okay, Logan, what you got, brother?

[Speaker] Yeah, so two things. One, my wife's a huge fan now because I, I thought just paying myself a decent paycheck was profit. Thought I got to the point where I was good, then I read your book, and then I'm like, crap, I gotta start over again. But now I have a nice $10,000 patio in my backyard in my wife's house.

Yay!

That's awesome.

There we go.

Yeah.

So wife's a huge fan. Question for you on the tax account, obviously, and the various accounts in general structure. I've started doing something, and I want to get your take on it. So as we grow our revenue, obviously the chunk of change we're putting aside for taxes is pretty significant. And in the world we live in, I think everyone's kind of cognizant that inflation sucks and we're trying to figure out how to maximize that. What are your thoughts of— I know your book advocates checking accounts, savings accounts. What about money market accounts just to try to generate a little bit of interest on that as we move money around from a risk-reward standpoint? Like 5% on a money market account for $100,000 in taxes is $5,000 over a year for doing nothing. What's your take on that?

Go all in on Bitcoin.

No, I'm kidding. I'm kidding. I'm kidding. Yeah, right. Yeah, right. It's been a good few weeks. Safe moon. Safe moon. It's been a few good weeks. Next week it was gonna go bottom out again, but I am absolutely, absolutely a fan for that. There's actually a dangerous scenario though. As businesses accumulate more cash, the one risk you have is you have what's called deep pocket syndrome, and people sniff it out, and then you become a lawsuit target because you got money. So I would talk with a professional to disperse that money. But one technique we use is a ladder strategy. So a ladder strategy is we want to increase interest, but we want accessibility to our money. How do you get more interest in a secure way? Increase money. So money markets, but we actually use CDs, which can yield more. Okay, but we put them into 3-month increments. So I'll implement one today for 3 months, one for 6 months, one for 9 months, one for 12 months. So they're all expiring every 3 months. One quarter of that money becomes available again.

That makes sense.

I like that.

Cool.

Okay.

Thank you.

You're welcome. And by the way, just reminded me, the last person was talking about the Pumpkin Plan. I heard it mentioned. Ironically, today the Pumpkin Plan for MSPs just got released on Amazon.

Yeah.

Yeah. So seriously. So yeah, not by, not written by me, but a provider in the space. So check it out.

That's great.

That's great. All right, Brian.

So that's this one.

Okay, cool.

So first of all, I want to kind of give a public admission here and sort of shame myself in front of everyone. 6 years ago, I read Profit First. Started implementing the processes, started having a separate bank. I did it, I put money aside, and then as business started going back downhill, I started stealing from myself. So if it's happened to you, it's happened to me, it's happened to a lot of us. But what that showed me is that I lost the discipline to really pay attention what mattered, which is watching the numbers and getting my OpEx back in line. And anyway, so the question I have for you is about the tax account. Since most of us are in a pass-through entity is that tax count the money for which we're setting aside for taxes? How does it then apply when it passes through us personally, which is where we're actually paying taxes? Can you describe that method?

Yeah, yeah, yeah, yeah. So first of all, the, you know, doing private first and then not doing it, there's a word for that. It's called human. That's normal, and it is very common, and it's okay. So definitely don't punish yourself, but, you know, let's get back on it. What happens with the taxes is it depends on the formation of your company. So Do you have an S corp or C corp or LLC? S corp. Okay. So S corp means you're receiving a W-2 paycheck. So this is how it works. If you have an LLC, which maybe some businesses in here, your business can allocate money toward taxes and actually pay the tax installment directly. If you have an S corp, it's gonna get drawn from your paycheck and there's a tax benefit to that. So work with your accountant. They're gonna set a salary for you to get the tax benefit, but your business can do what's called a tax distribution reimbursement back to you. So let's just say over the year, pulled from your W-2 paycheck is $10,000 over the year in taxes. Your company will then do a distribution of $10,000 that reserved in the tax account back to you as a distribution. So that's how you handle it. You're welcome. Great, great.

Go ahead, sir.

This may be kind of a dumb question, but we're an S corp also. I pay myself a salary. Would that— you set aside a separate account for the 10% for owner's pay, could we not just, I mean, add 10% to the OpEx account? And since I pay myself like a regular W-2.

Yeah, so that's not a dumb question at all. It's a stupid question. Okay, okay, okay. Okay, okay. No, it's a great question. It's a great question 'cause logically you're 100% right. You can not have an owner's comp account and just put it into OpEx where you pay from. I assume you have a payroll account, is that true? Yes. Okay. So why? So you could just put in the payroll account. You can, but the logic is the concept of the envelope system. So I didn't say the envelope system, but that's what this is. What we do is we allocate money toward profit, then owner's comp. You have a payroll account where money goes there. When you do payroll, we're gonna take money out of owner's comp and put it into payroll, which sounds like an extra step, but psychologically you did an allocation to yourself and there's a dopamine and serotonin release. So this is all the behavioral stuff. When we reserve money for you first in owner's comp, you see it, you'll feel this, oh, all right, I'm paid for. And then we allocate it out. My company too is an S corp. We too have a payroll account. We too have owner's pay and money goes in there. And every time I look, I'm like, all right, my pay is secured too. And it gets allocated in. So it is, to your point, you were right, it is an extra step. It serves us behaviorally.

Can I ask one more question? Of course.

Of course.

Is all, do you treat all incoming revenue the same? So for example, say 25 or 30% of our revenue is a hard cost of goods sold. Say we have $15,000 a month in Office 365, you know, billing. That's a very small margin. So are we treating that money the same?

That's a fantastic question. Kinda. So I, my MSP, we also sold hardware. And the margins were maybe 15% on average. So we'd have to restock inventory, and where do you pull from? In that case, we do, we set up an account called materials or inventory. And when income would come in, the first thing we do is say, how much of this income was generated from product sales? Let's say 30%, say $1,000 came in, 30%, that's $300. I would then say, to purchase this stuff, it's 85% of that. So $275 goes back into my inventory account to buy future stuff, and then the rest gets allocated out accordingly. That's an advanced Profit First technique, but we use it regularly with those situations. Great questions.

Yeah, I know we have some, some questions from the online audience too, so Ryan's gonna—

Yes, so Chris Wilson is asking, how do you get your accountant on board without trying to charge you more for all of the accounts?

Well, yeah, tell your accountant, Chris, tell So, my God. So here's the irony. These more accounts, if your account says it's gonna take more time, we have not seen that situation. In fact, it's more efficient because money's pre-allocated to its use.

It's in the right spot.

It's in the right spot. So when the money's pulled, the account says, oh, this was pulled for this purpose and that purpose. So it's actually pre-allocated. That's part one.

Yours loves it?

Ours loves it. Yours loves it, yeah. See it. Part 2 is it's only some transfers. It's not that all the bills are coming from all over the place. It's coming from one spot. So we're transferring money from income over. There's usually on average per month maybe 20 more transfers, but so clear is what it's about. So it actually should be more efficient for your accountant when they do this.

It almost sounds like, Chris, it's time for a new accountant.

But yeah, it may be. It may be. Here's the I like that. Here's the most like dicky thing you can do though, because I've done this once with an accountant. I did my own accountant, Keith, and I was his first customer doing Profit First, right? I made it and I'm doing it and I've done a full-blown rollout. I showed you 5 accounts. We have 20, which I know sounds ridiculous. It's heaven once you start getting into it. So we have 20 accounts. And he goes, why are you doing this Profit First? He goes, it's so stupid. We'll just do it how I teach you. I said, Keith, let me ask you, how many clients do you have? He's like, I got 3, you know, pretty big, 300 clients. Great. I said, how many of them are profitable? And that's when he's like, oh well, like, he goes, well, you know, a handful, maybe, maybe 10%, maybe 30 of them are profitable. I said, how many of them take a quarterly profit distribution? He's like, well, one, it's you. Okay, how many of you— yeah, how many of them also pay themselves a salary representing what they should get paid? Say, well, just you. So I'm like, so you're telling people to do something that's not working and you're yelling at me and I'm the only guy that's working? He's like, well, yeah. Like, let's think about this.

Great job, man.

Great job. Then I looked at mine. Yeah, to get back at him. Exit left. Yeah, exit left.

All right, Ryan, I'm going to bump to, uh, over here. I can't see who that is. I'm sorry, I can't see over here. Go ahead, sir.

Um, it's Tim.

Oh, hey Tim.

Hey Tim.

Um, I got Tim now.

Uh, Mike, I appreciate your book. I got a couple couple months ago for Christmas from my wife.

What a great Christmas.

I was actually super excited. Like, I got all the other presents, I got the book. I was like, dude, hell yeah, this is what I wanted.

Did you spend Christmas dinner talking about me?

Maybe.

Her teacher actually teaches Profit First as well.

That's awesome.

Yeah.

My question is, I'm a couple chapters in, and with operating expenses, Um, we like to put everything on a credit card and earn the points. We get 5% back on all utilities, which is significant for us. Um, how would you recommend keeping a budget but still using a credit card to collect those rewards?

So, um, I'm not a major fan of credit cards. Realize that whatever we get back, that credit card company is not losing money. They are earning it in some way. and it is a behavioral trick to get people addicted to credit cards. Study after study shows that when people use credit cards, we spend up to 5 times what we do on cash if we had the same amount of money on cash. So just be aware that it's, it's a trick that they're using. If you still want to use credit cards, a couple things we do is we first break out one-time transaction credit cards and what we call subscription credit cards. I get— we do use credit cards in our office a little bit. We have one card that says subscriptions, so any recurring costs go on that one card. What's powerful about that is these things are pretty insidious. These subscriptions start adding up. And one cool thing is when we get kind of out of control with subscriptions, don't know what's going on, we just cancel the card, and all of a sudden all those companies start calling us and saying, where's our money? And so we can get get back realigned. So that's one little trick you can use, which that works really well.

I would say I did exactly the same thing.

Yeah, it worked unbelievably well. Um, and so, and then with the, the credit card, um, what I would do is have an account specifically to that card that's funded. And this is kind of ballsy, I know it doesn't work, uh, logically, but behaviorally does, is we pre-fund our credit cards. So we have a credit card that has like a $30,000 line. We've reserved, and there's actually $30,000 credit effectively sitting on that card, which means the credit card company has the money in advance, which I know makes no logical sense, but then as we use it, it treats as a debit card for us and we get the points. So a couple ideas. I'm not saying those are perfect, but just a couple ideas.

Okay, thank you.

You're welcome.

Yeah, thanks, Tim. Ryan, did you have more online questions too? Okay, okay, go ahead, sir.

Really great presentation.

I'm just curious, can you Do you find people that adapt this to their personal life?

And how would you go about doing that? What are some of those differences? Yeah, totally. And I encourage everyone here to adapt it to your personal life. So in the book, there's a section called Profit First Life, and it talks about this. The reason why I think it's so important for all of us is the health of your organization is like a conjoined twin to your personal fulfillment. Finances. So if your business is crushing it financially and you're not at home, you're blowing all that money, your business will start getting pulled down by you, or vice versa. You're crushing it at home and the business is struggling, it'll start siphoning off your life. So that they work conjoined. Uh, the way to do it is very similar. We set up accounts specific to our use. So we have an income account at our house, my wife and I, and then we have, um, for I have 3 kids in college, well I did, now 2 are out, but we have college accounts that we're funding too over time. My roof as an example, I have an account that says the roof. I know an average roof lasts 20 years, we bought the house 7 years ago, so I'm like, well, the longest it can last is 20 years and we're 7 years in, but it probably wasn't a new roof, it was probably halfway through, so I probably got 3 years left. So over the last 10 years, I'm expecting my roof to need to be replaced in 3 years, I've been saving to buy a roof the Roof account. But the coolest thing is my wife and I used to get in conflict over finances. Um, she doesn't like numbers, I don't like numbers. And so she'd call me, do we have enough money to do this or that? And so we set up our own accounts that says like a grocery— she does grocery shopping for us— the groceries debit card and other expenses, but it's in that card. And so she never calls me, she just simply just knows to log into the account, see how much money is there, and that's how much we you can spend on food, as an example. Great, thank you.

It's so crazy when you watch, when you, coming back to the whole conjoined twins thing, when you see companies, you can absolutely tell people that, like if you spend a little bit of time around them, you can tell the ones that are dragging their company down with their personal spending habits.

The best thing is when you go to, actually the best thing, the most obvious thing is you go to someone's house. All I'm looking for, I wanna see, the house, the outside and inside, and it's usually an indicator. The big house with the lawn chair furniture inside, I'm like, that is a business that's in trouble. It's usually that way.

Yeah, it's very interesting to see, especially from the business coach side. We can really see it. Like Cindy and I and Lindsay, we kind of look at it and we're like, okay, that, that, that. Ryan O'Hara, you have another question from online.

All right, David Rose is asking, can you or your team share standards percentages of total revenue that each major expense category should be at so we can squeeze the tube in the best way?

Yeah, so we can. I'm not gonna go into the hairy details. On the worksheet— on the worksheet on the back is the major categories. I would talk with Aaron. We have designated multiple accounts. I'll give you one little tip. For example, we have many accounts that you can use in a specialized way. One of my favorites is a new employee account. I'm curious, just maybe by a show of hands, if you can relate to this. You need to hire a new employee, but you don't know if you can afford them or not. Do you, can you relate to that? Okay, okay. So there's an account for this. What we do is we set up an account called new employee. So let's say this new person's gonna come on board, we have to pay $75,000 a year is our estimate. Don't run the ad, don't do anything. First prove the cash flow. So we set up an account, it says new employee, we start allocating on a percentage basis to equate to a $75,000 salary. We do it for 2, 3 months. We say, okay, the business can or can't handle the cash flow. If it can't, improve the business first. If it can handle that cash flow, the money's accumulating, then I run the ad. Within another month or two, I hire someone, so now I'm about 6 months in. I have 6 months of reserved cash, so this person comes on board, it's not a panic, like you have to get out there and bill and go, go, go. We have runway, but we've also proved cash flow. So that's like one technique of—

I love that strategy. Every single buddy, every person watching this should be putting that strategy.

Yeah, it's so powerful.

Yeah. So David, miss you here, brother, by the way. One thing that I'll say to this, Ryan, do you know if we gave the worksheet to the people online as well?

I don't, but I have that question.

I was just about to figure that out.

So let's make sure we get that out for— do you mind if we do that?

Of course.

So everybody that's watching If you're watching online and on the recording, we'll make sure you guys get that, and then we can have you go through that exercise. So, Andrew. Yeah, that's Andrew. Okay, go ahead, buddy.

Hey, so great presentation. So in a business growth, you know, eventually at some point, I don't know, for me at least, business owners finance the business. Like you get a little short, you throw personal money in. You graduate to not using personal money, the business gets to the point where if you need financing, it's through the business. If you need, you know, whatever the case may be. And hopefully it's secured with a, from a risk management standpoint, with a non-personal guarantee. Servicing that debt, should that be under operating expense? Is that where you should allocate that to?

Oh, great question. Yeah. And I could do a whole presentation on debt management. So the short answer is yeah. You use the OpEx. But there's certain circumstances, and it's probably true for businesses in this room, that some people have a lot of debt. And a common thing I hear is I can't use Profit First or be profitable until I get out of debt. But the reality is—

excuse, isn't it?

It is an excuse. Yeah, because the only way to get out of debt is by being profitable. You have to make more than you're spending. So what we do in a case like that, if you're laden with debt right now, we start doing the profit allocations and that money that's accumulated, we use a large portion of it to start wiping debt quickly. But we don't use all of it for for that. We still have to reward the business owner because there's a psychology. So a business that's laden with debt, with every penny that's going to serving debt, we start to become disheartened. It's like, God, it's another year of debt. This is not worth it. If we start giving ourselves a small reward, a small piece of the profit, we start seeing the momentum ultimately crush the debt. And then all that profit goes to you.

I got two more quick ones. Filing as an S corp, as an LLC, is the Theory behind that, I was told it years ago, was so you don't pay FICA on the owner's distribution draw, whatever. You're saving that 14.5%. Is that still an effective strategy?

Yeah, yeah. Well, I mean, definitely talk with an accountant, and I'm not an accountant and proud not to be. ACP. But generally, generally, I've found businesses that we've worked with, it's when you surpass $1 million in revenue that an S corp seems to be a better tax strategy than an LLC. An S corp can envelop an LLC or you can sell, you know, you can transfer it over. But definitely talk to the accountant.

Kind of goes to what Garrett was talking about yesterday, right? We had Garrett Gunderson here yesterday too.

Okay. Yeah.

So about your toothpaste, easy question. What happens when you live with somebody that a brand new tube of toothpaste gets squeezed from the top and all the top is going—

A top squeezer.

A top squeezer. How do you fix that problem?

Yeah. It's so simple. Divorce.

That's what's up.

Yeah, yeah.

That's an expensive solution, but it works.

It's very expensive, but it's worth it. It's worth it.

Or just get your own tubes of toothpaste.

Yeah.

Then you don't have to worry about it. So I just wanted to do it.

Wait, hold on.

Do people actually share toothpaste tubes? Is that a real thing? Because I have my own stuff.

I have my own stuff too.

I have my own stuff. It's easier that way.

That's weird.

I don't know. I never thought about that. Yeah. Thank you.

I just wanted to share a shout-out. We started Profit First probably 7 years ago, and it was right before a really difficult time in our business, and it helped that just be a blip that was a few months instead of who knows how much longer. What it's really done is it's created margin with money to where we're not having to live check to check. And it gives us a little more freedom with our money. And it's really nice. I'm watching the calendar all the time because, hey, is it quarter? Is it the end of the quarter yet? I'm ready to write ourselves a big fat check and then let's go do something nice with it.

Congratulations.

So it's been a life changer for our business. Just wanted to give you a little shout out.

That means the world to me. Thank you.

Congratulations.

Thanks, Randy. The 90 days is also rooted in a behavioral sci— so Profit First is a behavioral cash management system. It's all rooted in behavioral psychology. If you own public stock, you'll notice that most public companies do quarterly distributions, and there's a behavioral reason. Is 90 days, at least for the human experience, is far enough out that we anticipate it, but we don't necessarily expect it. It doesn't become part of our natural expectation. But it's far enough out that we are expecting, excited about it, and it happens frequently enough that it reinforces that behavior. If you take your profit distributions, say, every week, then your life standard becomes like, oh, every week I get this. It becomes a salary effectively. If you do it every year, it's so far out, like, oh, it's never getting here. So that 90-day increment causes that exact behavior that gentleman was sharing. You get excited, you get pumped, you get your new patio, and then you do it again.

Well, and then there's that little dopamine hit and all these other things that go along with it. And I think a really a really good mindset that you bring with all of this is notice we have that behavioral evolution discussion. So all of this stuff is about discipline and creating ways. I mean, we're still human. You said that, like, we're still human. We get it. That doesn't mean you're a bad person, doesn't mean you're a bad business owner, doesn't— but you have to be aware enough to be like, okay, I did this wrong. Stop. Here's what I'm going to do to control myself. Personal trainer, putting your shoes in the toilet, etc.

In the toilet. In the toilet.

Last question, Mr. Brett. Yes, from Northern New Brunswick, Canada.

That's right.

Oh, there's a few folks from New Brunswick. Yeah, nice.

So thanks, Mike. Question for you. I've, I've, I've developed a healthy nest egg of— I've accumulated a lot of cash in my business, and I put a lot in, in Canada, we call them GICs, and In a way, my bookkeeper is doing Profit First, but to get her on board, she would never go for it. But my question is, I realize I'm not paying myself enough, and I really like that 90-day disbursement. Where would you start first? Do I give myself a big disbursement? Reimbursement now and then start doing it every 90 days?

Great question. So I just want to point that you said that, you know, she will never go for it. By the way, that's common that accountants and bookkeepers won't go for it. And I also understand why. They've been trained on the methodologies of taking profit last since the day they became an accountant or bookkeeper. It's in thousands of books. So this is such a contrarian strategy, it blows people's minds. In regards to increasing your salary, what happens is, we talked about Parkinson's Law, our behavior adjusts to meet supply. Generally, we scale up slowly over time. If all of a sudden there's a massive burst in compensation, our behavior will be like, oh, this is my new expectation. So what I would do is incrementally increase it over many quarters, probably 8 quarters, whatever. If you have this big chunk of cash, start bleeding it out, and then your business will have to adjust to support that on an ongoing basis.

So I want an ATV in May.

So you, you want— you've got an ATV?

I want to buy an ATV.

Yeah, so that would become from— okay, so hopefully we're hanging out.

Uh, I'm going to get a tank according to Logan.

So, but yeah, so the ATV and stuff in, in most business circumstances comes from the profit distribution, right? So you have a life standard But the goal too is to build your life standard where an ATV is a drop in the bucket, and that's now part of your normal routine if that's what you so desire, and profits separate.

Gotcha. Yeah, there you go.

Yeah, good.

Yes, every 3 months.

Yeah, doesn't need to be a snowmobile in northern New Brunswick.

Yeah, yes, so we can get to our igloo.

So it's got the skis on it.

Oh, the skis in the front. Yeah, rock and roll.

All right, so coming up next, guys, we have a photo opportunity with Mike. There's a book for everybody that's here. I think we're gonna do that in the vendor area or around— no, somewhere, somewhere between here and the hotel entrance, we'll just say. Mike, thanks so much, brother. It's great to see you again.

Thank you, brother.

And let's give Mike a hand, guys.

Thank you. Thanks, everybody.