Profit First Keynote by Mike Michalowicz (Full Presentation): How To Do It The Right Way

Everyone here knows that foundational formula. You have revenue coming to your business, you subtract the expenses you incur, and what's left over is profit. The problem is, for almost no business is there profit left over. There was a study conducted by the SBA, uh, Small Business Administration, in conjunction with a major bank, and they identified that of the 32 million small businesses in the US, And just to give context, a small business is a company that does $25 million in annual revenue or less. That's my business. Perhaps it's most of the businesses in this room. And of the 32 million of us in the US, only 17% are sustainably profitable, which means 83% of businesses are surviving check by check. That means 83% of businesses don't have enough money today to pay all the bills and the rent, let alone the owner pay themselves a reasonable and appropriate salary. We have to sell our way constantly. And, uh, if that doesn't represent you, by the way, statistically it's both the person sitting to your left and your right who's struggling. 83% of businesses survive check by check, and yet every accounting book says this is the foundational formula. In fact, We use it in our terminology. We call profit the bottom line, the year end, the final take, all these things that say profit comes last and then profit never happens for businesses. Well, I, I was looking into this concept of being lied to by someone who loves us because they think it's in our best interest. And, and I think I found ground zero, like where it first happens. I think it happens when you're about 5 or maybe 6 years old is the first real one. Now I grew up in the '70s and that was the stranger danger generation, if anyone remembers that. Yeah, okay. So my mother, she would tell me, Mike, when you leave kindergarten, the school is walking distance, she'd say get up and get out and never make eye contact with any strangers, just go right back to the house. And then when you get into the house, swing the chain lock, slide the bolt on, wedge a chair under the doorknob and wait for my mom and dad to come home while I watched reruns, or it was live back then, of CHiPs. There were new episodes of CHiPs. And I was loyal to that. I would never make eye contact, never communicate with a stranger, never. One day when I was 5, maybe 6 years old, I was losing my first tooth. I was— my first baby tooth was going away. I was getting my first adult tooth. And my mother came to me and she said, Mike, you know that stranger danger thing? I said, yes, never make contact, never look, just get home. She said, yes, that's exactly true, except there's one stranger who's okay. I said, who is it? She goes, when a child loses their first tooth, there's this woman who in the middle of the night will crawl into bed with you will take a body part from you and then leave you hush money so you don't talk about it. I'm like, my God, she sounds amazing. She's an angel. She's a fairy. And I think, I think that is ground zero for being lied to by someone who cares for us and loves us. I think as we become adults, they become a little more tricky and they become what's called axioms. An axiom is a belief that's so established that a trusted confidant like an accountant or bookkeeper alone doesn't need to say to you, we just know this. We just know this is the formula for running our business. We just know if you sell enough and you control expenses, profit will happen. But it rarely does. This study by the SBA went on to become a global study. There's 350 million small businesses globally. I've had the privilege of traveling the world, meeting with entrepreneurs everywhere, and the study found the exact same thing. 83 to 84% of businesses are on the brink of going under constantly. How can that be? Let me ask you a question. Did you start— just by showing hands, did you start your business in part to achieve financial freedom? Raise your hand nice and high. Okay, pretty much every hand went up. Did— here's another question. Did you start your business in part for personal freedom to do what you want when you want? Raise your hand nice and high. Okay. None of those things happen. You start a business and you absolutely don't have financial freedom and no personal freedom. You work like an animal and you get paid nothing for it. That's what the experiences of most businesses. Now, how can this be? How can it be that we start our business and every entrepreneur seems to do this for personal freedom and financial freedom to to be fulfilled, and yet so few achieve it. I, I asked myself, what's wrong with us? And then I figured out, oh my gosh, there's nothing wrong with us. There's something wrong with this system. A little bit about my background, uh, I'm a former MSP. I had a chance to meet some of you a couple years ago when I was out here, uh, this was before we were called MSPs, before we were called IT providers. This is back to when we were called VARs. Everyone here remember what VAR is? Okay, the value-added reseller. So if you remember a VAR, that was, we were installing not hubs, not switches, not hubs, but MAUs. Do you remember that? A multi-access unit. Yeah. Little, little kid. Okay, okay, okay. I was about to say you're 70 years old, sir. All right. Only a year older than you. So we were installing MAUs and NetWare 2.2 was the standard network. I was installing those. We used to install Token Ring. I don't know if you remember Token Ring. Token Ring, you usually used a coax cable, it'd run around the office. It was the most dangerous network setup ever. The stability didn't exist because when you would walk into a Token Ring environment, God forbid you tripped over the cable, the entire network would crash. I wonder why my business was struggling. Well, my business, that company, after 5 years of running it, we had achieved $1 million in revenue. Let me take it back. We achieved the entrepreneur's definition of $1 million in revenue. I was doing about $400,000, but just rounding it up like entrepreneurs do. Yeah, we're about $1 million. $400,000. I called my accountant after 5 years of not being profitable, and he said, Mike, I have great news for you. I know it's your 5th year in business. We just ran The profit and loss statement and, uh, you're profitable. You, you have a $15,000 profit. I don't know if you've ever been there, but it's such a great moment to finally, after all this work and effort, the sheet prints out and at the bottom was $15,000 and I felt the butterflies building up like, this is amazing. And then I asked Keith, my accountant, the question I regret. I said, Keith, where is that money? Thank you. Thank you for laughing. I don't know if you know how accountants laugh. It's more of a laugh that reverts to maniacal snorting. Have you noticed? Because, because Keith goes, he goes, oh, that $15,000, that's an accounting profit. You don't have any of it. You blew that money already. I'm like, what? Who? What's up with this? It was, it was a stab to my gut. This formula I have found is a lie, and the reason it's a lie is because it tells us that profit comes last. It's the final consideration. Right now we're just approaching, uh, year-end calculations. You know, tax times is upon us right now, and you're probably getting your profit and loss statements in for the last 2023, and here's your numbers. For most entrepreneurs and for myself, for, for decades, I was waiting for profit to happen at the end of the year. And when it didn't, it was a kick the can down the road and maybe profit will happen next year. The problem with this formula is it tells us that profit's a final consideration. This is a logical formula. I get it, but it is not behavioral. And that's the issue with it. When something comes last, it's human nature to say it's not important. Not now. I can worry about it later. Think about it. When you put things last, is that important to you? If you love your family, do you say, I love my family so much, I've decided to finally start putting them last? Of course not. My health. Talking about health, there's people at the gym at 5 this morning. Yeah, there's one of the fellas. I walk in there and it's quite a few. The whole crew's there and they're like, hey, welcome to the gym. Like, this is the weirdest gym experience of my life. No one talks to each other and they're like, you're part of the 5 AM club. And I looked, it was 5:59. So I qualified. But if your health matters to you, do you say I value my health so much I've decided to start putting it last? Of course not. What comes first gets done. What comes last is the mañana syndrome. And we've been told that profit comes last. So for at least 83% of businesses and most of the businesses in here, We never get to profit. It's just the kick the can down the road. My commitment is today I'm going to make you profitable. I guarantee by tomorrow morning, in just a few steps, you will be permanently profitable. And what it requires is that we understand a new formula. The new formula is this. It's going to turn a little bit so everyone can see. We're going to take our sales minus our profit, and that is going to result in the expenses. Now, if you're familiar with basic math principles, this is formulaically the exact same formula. It's called a variable swap. We took expenses and put it below the line. We took profit and put it above the line. So this is the exact same formula mathematically, logically. The data is the same. But behaviorally, it's radically different. What I'm suggesting is starting today, every time revenue comes into your company, we're going to take a predetermined percentage of that money as profit, hide it away from your business, and then what's left over is what you have to operate your business. This is the pay yourself first principle applied to business. Do you know the greatest savings mechanism in US history is the 401(k)? 401(k). I don't know if you participate in one or ever have, but you know how it works. There is your gross pay, which is usually pretty gross. Uh, there's your gross pay. You then subtract your savings, goes into 401(k), and then you live off your net pay. It's mechanical forced savings and it works fantastically. The greatest savings mechanism ever. Now, just before I teach you the process and how we're going to start taking our profit first, I, I do want to share a little bit more about my backstory because I am passionate about the subject, and you will see my energy growing and going as we talk about this because I am so thirsty to make your business wildly profitable. I believe you are the biggest contributor to our society. There, there is a saying that small business is the backbone of the economy. I call bull on that. Small business is not the backbone of the economy. Small business is the economy. We need your success. Every single business that exists today started off as a small business or a small business idea that grew. Small business is the backbone of the economy, and if we're not profitable, the economy is done. That's why, in part, I'm so passionate about it, but I also have a personal experience with it. That first company I grew, Olmec, was the name of it, still exists today. I ultimately sold it to a private equity deal. It was never profitable when I was running it. I actually refinanced my house on two occasions to cover payroll and other costs. I had credit card debt out the wazoo. But finally, this company came in and bought it. And it wasn't like I made F-you money, but I made F-me money. I don't even know what that means, but you know what I'm saying. Like, it's somewhere— there's an F you, there's an F you here, there's an F me there, and there's something in the— I was there, I was there. And that's when it hit me, said, oh, I now understand how this formula works. This is a— is a— is a pump and dump mentality. You got to pump up the business, make it look big and attractive to someone else, and then you make your money. I get it now. My second business was in computer crime investigation. We conduct, this is true, we conducted the investigation of the Enron trial, so I'm sure you're familiar with that case. We were not the prosecution, that was the FBI, the ATF, all law enforcement. We actually did what's called defense analysis. So if you remember names like Kenneth Lay, Andrew Fastow, they were clients. The evidence is no longer sequestered, that case is long past, and I can speak openly about it, so if anyone is curious about the Enron trial, We can chitchat all day about it. I will tell you this: they were guilty. They were guilty, and I was their defense. Uh, they were guilty. Um, in that business, the right opportunities, the right positioning, uh, I grew it and I was able to sell to Fortune 500. But the business was never profitable. In fact, the day I sold it, we had half a million dollars of debt because I was trying to grow this company, hire as fast as possible, get the latest cut cutting-edge technology. And we were acquired by Robert Half International. And that time it was F-you money. And then I said, okay, I got this figured out. This is a pump-and-dump strategy. You've got to grow fast. I did within 3 years and get out of these businesses. That's the only way you're going to make money. I was 31 years old. I was a self-made millionaire. I had this figured out. And I also realized I need to sustain this new lifestyle. A new lifestyle when you make fu money, at least for me, was the first thing I did, I said, well, I'm going to get a couple of new cars. So I bought a Land Rover, BMW, and a Dodge Viper all within 4 hours. Thank you. Thank you very much. I got a place out in Hawaii. There's a private island called Lanai. I don't know if you've heard of it, but It's owned by Larry Ellison, the founder of Oracle, and we got, we went on sabbatical out there. We moved into a particularly affluent town in New Jersey called Mountain Lakes. If you don't know Mountain Lakes, you probably know that New Jersey doesn't have mountains and doesn't have lakes. It was, the appropriate name was like kind of Hilly Puddles. It's kind of, so I moved into Hilly Puddles And I wanted to show my success, admittedly full of arrogance. I had to show who I was and how successful I am. And I also said I have to sustain this new lifestyle. This money was depleting very quickly. So I decided to become an angel investor. So if, if you had a business idea, I would come to you and say, that sounds great. I'm going to insert some money into this. And by the way, Genius Mike is here, so we're gonna crush it. And you have an idea, and you have an idea, and I was putting money into all these different businesses. So our 10 new companies, all within a year, all of them were underwater. Within 2 years, I had evaporated every penny that I had earned. All my wealth was gone. So ironically, while I'm gonna share with you a strategy to accumulate wealth, I'm really good at blowing it too. So if anyone wants to talk about that, we can do it. Buy a Dodge Viper. I looked up in the Webster Dictionary, I'm just curious, is there a term for this kind of entrepreneurial thing where someone admittedly is pretty darn arrogant and also to show off their success? What's the word for this? And it's in the Webster Dictionary. The word is dick. Dick. I had become a dick. I didn't even know it. I thought I was like, I'm gonna show off my success. 2 years, I blew it all. And in retrospect, it was probably the most important moment of my life is when I got the call from my accountant, ironically on February 14th, which was yesterday, of 2008. So I remember to the moment, it was 3 o'clock in the afternoon. Phone rings, I pick it up, it's Keith. The giggle snort guy. And he goes, I can't believe I'm saying this to you, Mike. You know, you've been so successful, you've done all these great things. He goes, uh, we've just run the numbers, uh, you have a big, big tax bill, and your cash situation— you can't even afford this. It is— it's our professional recommendation you declare bankruptcy. Now, I don't know if you've ever been there where you logically see money dwindling but emotionally can't accept it. I saw my bank account account just depleting so quickly. But my mind was like, oh, it's going to, it's going to come back. It's going to bounce back. One big client will appear, one investor will come, something will change. But there was no more avoiding it. I couldn't afford my credit card bills that piled up. I couldn't afford the debt I had, let alone pay taxes. So I said to Keith, I said, what do you do when you can't pay taxes? He goes, oh, you can skip it. He goes, just don't pay taxes. I'm like, what happens if you do that? He goes, you go to jail. I'm like, what the eff? This is the darkest part of my life. And he's like joking, you're going to jail. They'll call you Buttercup there. Oh my God. He literally said they'll call you Buttercup. That day I came home, February 14th. How we celebrate Valentine's Day at our house— my kids are now out of the house, but what we used to do is my wife and children would cook a big meal starting early in the afternoon, and I'd usually get home by 5 o'clock that day, and then we would exchange cards and celebrate almost like a Thanksgiving dinner. But this day, while I told my wife I'd be home at 5 o'clock, I didn't get home at 5 o'clock. I drove and I was sitting outside the house and I was starting to sob because I had to tell my wife that we were about to lose the house. We lost it 30 days later. I decided not to declare bankruptcy. I didn't think my creditors were responsible for my erroneous ways with financial management, but I had to get the last cash I had, which was in my few assets. So I'm sobbing and I'm like, my wife, we're going to lose the house because I had been lying to my family up to that point by omission. Whenever my wife said, how are things going? Like, it's great, we're going to crush it. When, when my, my children are like, how's it going, Daddy? I'm like, fantastic, we got this and business is so good. And it was so bad. By 5:15, the first text comes, you know, Mike, where are you? I'm sitting there. Another text, 5:30, I called the office, you're not there. You should have been home a half hour ago. And then the one text came in that got me walking inside. It said, I just called the police. No one knows where you are. So I got out of the car and kind of Frankenstein my way to the door. And my wife opened it and she saw me sobbing. She goes, what happened? Who died? Did someone die? Who died? And I said, I think my soul's died. She sat me down. The food was served. It was freezing cold. My children were sitting there. And we, you and I, have defined ourselves, I suspect, as providers, right? Your job is to provide for yourself. For your family, for your loved ones, perhaps your community. But we're providers. That's, that's the one job we give ourselves. And the one job I gave myself, I wasn't delivering. I couldn't do. I felt like such crap. And I'm sitting there. I told my wife and kids, I said, we're losing the house. And then everyone's crying. Like, what is going on? The shock and stuff. There was a chandelier above the the table and everyone starts looking up. They couldn't even make eye contact with me. And there were all these what-ifs and what's going on and so forth. And my little daughter, she was 9 years old at the time, she said to me, she was, Daddy, can I still go to horseback riding lessons? Her favorite activity was to go to horseback riding lessons. It cost $20. It was a group of like 6 kids or 7 kids for a half hour. They would practice and she loved it. In fact, she had a piggy bank in her room. She was saving one day to buy her own horse with nickels and quarters she was earning. And I said, I'm sorry, but you can't— you have to stop going. I mean, there was nothing. And as she said this, as I said this to my daughter, she stood up and she ran out of the room as fast as little legs could carry her. She just bolted. And that was rock bottom. You know, when you've had a rock bottom moment, I know everyone's been here and I'm talking about a financial challenge. Challenge. I know people in here have experienced stuff that is 1,000 times worse that we won't talk about, like physical or sexual or abuse, and it's just horrible stuff. And in those moments, sometimes the solution feels like running away. In fact, that's what I wanted to do. I wanted to bolt where no one would know me and to start new and just get out of Dodge. And then to see my daughter running away from me, I hated it, but I also respected it because that's what I wanted to do. She wasn't running away though. She ran to her bedroom to grab that piggy bank and she ran back to me as fast as those little legs could. And she goes, Daddy, Daddy, she's like, I know you can't provide for us anymore, but I'll start doing it. Yeah, if you freaking cry, I'm a co-cryer. I'm a co-cryer. No, don't hold it in 'cause I'm a co-cryer. You cry, I cry. You vomit, I vomit. Yeah, it is. It's my darkest moment. And I will seriously start crying if I think about it longer. My daughter felt compelled to save me from me, to save us from me. That's called a rock bottom moment. And here's, here's the thing. And you've heard this about rock bottom moments. There is a beautiful saying about when you hit rock bottom, at least there's only one way to go, which is up. Have you heard that? It's beautiful. It's total bullshit, but it's beautiful. Because here's the reality of rock bottom. You get dragged along the ocean floor, shards of glass tear at your body. You get torn apart. For 2 years I went through depression. And I'm not proud of this, of course, but— or maybe I should be. I'm proud to share it. Because the most afflicted community in the world with depression is us. It's entrepreneurs because the constant stress we're under. My solution was lots of drinking. I barely drink now, but back then drank a lot to medicate myself and couldn't sleep. But I'll tell you this, that experience transformed my life to finding this formula. And this is what we're going to explore now. One particular night we were in a house, we couldn't afford a house anymore. So our friends, the Smiths, saved us. They were going away on a business trip, a sabbatical for 2 years and needed house sitters. That was our job. We were granted a house and I was staying there and we couldn't afford television. So I had actually cable TV, which I mean, not cable TV, antenna TV, which ironically they broadcast in high def. I don't know if you know this. And I'm watching a channel and on comes a fitness instructor that starts sharing principles about physical fitness that as I'm hearing it, like, oh my God, that's all the solutions I needed for fiscal fitness. So we're going to dig into those principles right now. But the one thing I want to share with you, I did hand out a worksheet. It's at your desk. We can fill this out together as we move along. Uh, so I'll give you the fill-in-the-blanks. We answered number 1 already. It says society is addicted to axioms, established truths or beliefs. That's what an axiom is. So number 1 is the word axioms. And then the next blank says, if the prior generation says it's true, the current generation assumes it to be true. This formula of sales minus expense equals profit has been around for over 300 years. So we just assume because it's always been that way, it will always be that way. As a result, today, 83%— is the next blank— of businesses under $25 million in revenue survive check to check. I'm gonna answer number 2 right now. We've been told that profit is an event, as in an eventuality. Profit is not an event. Profit is a habit. We're gonna bake it into every single transaction of your business. So number 2 is profit's not an event, profit's a habit. So how do we do this? Well, the first thing we're gonna do is we're gonna deploy what's called small plates. I'll do it on this This one right here. So I'm watching this fitness instructor on TV and she goes on to explain about our society and what's happened with plates. 300 years ago, 350 years ago, when our country was founded, plates were about this size. What we today consider a coffee saucer or maybe a dessert plate back then was an entrée plate. This is what we ate dinner off of. Human behavior in 350 years has not changed. Back then, George Washington and all his buddies would fill up their plate and, as their mom said, clean off your plate, Georgie. Now, over the last 300 years, plates have doubled in size. The containers have expanded. Our behavior hasn't changed. We still fill up our plates and we clean off our plates. But since the plates have doubled in size, the portions have doubled in size, our consumption has doubled in size, and societally, our waistline has doubled in size. The solution is simple. She said simply reduce the size of the plates. If you make the container smaller, our behavior adjusts. You may even notice with soda, remember soda cans? Soda cans used to be this big and then they were this big and now they're this big. Have you noticed? Do you, when you get that soda can, do you still drink it all? That's human nature. She said reduce the size of the containers. Let me ask a quick question. This group, Does anyone here have teenage boys? Just raise your hand if you do. I'm sorry. I'm sorry. And I'm sorry. I'm sorry because they're not teenage boys. They are creatures. The food consumption is redunculous. I have two or had two teenage boys, and I'm curious if their story is similar to your creatures. My two boys wake up somewhere around the ass crack of 2 in the afternoon. They come out of their lair, which is their bedroom, and you know they're coming because the stink that emanates in front of them and there's rotten smell comes and they're either like, ooh, and they're just disgusting. And they come to the kitchen, they don't speak English. There's like, and then they start eating breakfast. And for us it's Cheerios. We were going through a box of Cheerios every hour at our house. What they do is they— I see you nodding your head. You live this. They fill up the bowl. It's heaving over. There's Cheerios everywhere. They carefully reassemble it. Then they add the milk and this beautiful explosion of stickiness and Cheerios and milk everywhere. And then they go back to the lair. I tried this concept. This fitness instructor said, if you want to control consumption, consumption, reduce the size of the container. All of a sudden I got real clumsy. I was like, I broke all the bowls in the house. I don't know what happened. Went down to the local store, got bowls that were slightly smaller. Now here's a trick. I didn't go over to these little like ramekin dessert crème brûlée things. I got slightly smaller bowls. Then next morning, the ash crack of 2 in the afternoon, the monsters come out, they start eating their food. Same process, fill the bowls, everything's flowing everywhere. But they're serving smaller portions and don't even notice it's a smaller bowl. Over 6 months, I did about 4 times, I reduced the bowls to half the size and those goons never noticed. Never. Same stuff. A box of Cheerios lasted like 3 days, which if you've teenage boys is a miracle. The lesson is this, we must control the size of the container because our demand adjusts to meet the container size. So let me ask you two more questions. Who here for your business— and please participate if this is true, I want to get a survey, this is important for us all to see— who here for your business has what's called a primary checking account, which means you put most your deposits or all, and you pay most your bills or all your bills from that one account? Raise your hand. Nice. Awesome. Awesome. Okay, great. I'd say 85, 90% of the group. Excellent. If you raise your hand, You are primed to be very profitable. Why? Because that's human nature. That is common. I've surveyed countless entrepreneurs and most have a primary checking account. Word's gonna put a system in place to serve you. The lesson is this: don't try to change your habits, try to channel your existing habits. It's hard for us to change who we are, but we can channel an outcome we want, and that's what we're gonna do with profitability. So you have a great starting point. Second question is, who here, even though your accountant may say not to do this, they may say, look at your P&L and your balance sheet and your cash flow statement, know your OCR, operating cash ratio, tie in the metrics, and you'll know where your business stands. Who follows the shortcut that I follow and checks their bank account at least once a month to see what the balance is? And if you have money, you know you can spend it, and if you don't, you panic. Who checks their bank balance at least once a month? Raise your hand nice and high. Okay, great, great. Uh, any once-a-weekers in here, by the way? Once-a-weekers? Okay. Once-a-dayers? Once a day? Are you checking right now? Your hand's not even going down. You're just like— you were doing this move. Yeah, I got you, I got you. If you check your bank balance at least once a month or more frequently, amazing. That is the best thing you can do because that will channel— we can channel that to drive massive profitability in your business. It's the best behavior you can have. But how do we do it? We just need to change the system, or the bowls, if you will. Here's the first major step we're going to do with Profit First is we're going to set up 5 accounts for your business at your bank. The first account's called Income. Second account is going to be called Profit. Third is going to be called Owner Comp, and I'll explain what each one is in just a second. Fourth is going to be called Tax, and the fifth and final is going to be called OpEx. Now, this is how it works. Starting today, your income account is going to be what's called a depository account only. It only receives money. We're never going to spend a bill. We're never going to spend any money from it. We're not going to pay a single bill from it. I call it the cash turkey. Thanksgiving, believe it or not, was like 5 months ago already. I mean, it seems like it was yesterday, 4 months ago. Thanksgiving, we celebrated at our house. And I mean, I think it was 3 months ago, but whatever. We celebrated at our house and we had about 20 guests over, family and some friends. Uh, my wife and I pulled the turkey out of the oven and here's what didn't happen. I didn't say, hey everyone, just grab your knife and fork. First one to get it wins. Everyone for themselves. Of course not. What I did is you carve the turkey and why do you carve the turkey? So every guest at the table can get a piece of the meal. Obviously that's what serving trays do. They're used to serve all of the guests at the table. The cash that comes in our business has multiple responsibilities. We need to achieve profit and comp. We need tax bills paid and we need to operate the business. So what we're gonna do is money's gonna come into the income account and then we're gonna allocate money out to the other accounts to serve the guests at the table. The profit account. What's profit? Profit is money to reward shareholders for taking on risk. I don't know if here anyone owns any, uh, stock here. I own some stock in Ford. Not a stock tip, by the way. Um, yeah, yeah. All right. Oh, buy Ford. This guy's, uh, no. Um, I own 100 shares. The last distribution check I got was $13.23. I remember distinctly. Check comes in the mail. They do it every quarter. I open it up and I'm like, $13.23. Oh, getting a slice of pizza without any toppings nowadays. But here's the thing, I didn't look the money and say, I don't deserve this, Ford. We need to grow. Let's reinvest or plow it back into Ford. Go Ford, go! You don't return the money. You took risk for investing. I want the value to go up, but the risk is it could go down. The second thing is I didn't look at the money and say, oh my gosh, I have to earn this. I need to go to the factory and see if I can get a job for a little bit to earn my money. No, I've taken risk. Every person in this room is a shareholder in your business, and you are probably a major shareholder. 50%, 100%, 20%. I don't know what it is, but you own a lot of stock. Profit is a reward for taking risk of starting a company. There's another interesting statistic. Uh, 17% of the human population will ever attempt starting to, uh, a new business or running a new business. 17%. Only 20% of that 17% are successful in sustaining that for over 5 years. That means 3% of the population runs a business successfully. Uh, and that's perhaps you. You're here in this room, so you're one of the 3%. Aka you're one of the weirdos who decide, I'm gonna start a business, I'm gonna make all this money and change the world. You are also providing for our economy in such big ways. Maybe you have employees, you surely have vendors, you definitely have clients you're serving, you definitely have contractors that you work with. All of that contributes to our society. You deserve a profit distribution for taking on that risk, which is different than owner's comp. Owner's comp is the compensation for the work you do within the business. If we had to replace you today in all the things you do, what would we have to pay that person? I mean, think about it. I bet you're the best salesperson for your organization. You know more than anyone else does. You care more than anyone else does. Chances are you're the best technical, technically skilled person. Chances are you sacrifice time with your family and friends to keep the business going. I bet you do amazing things, and chances are you do it for, at times, very little pay. Could you imagine finding that employee? That's, that's a, that's a rock star employee. Well, your company's already found that employee. It's you. You're the person. We need to pay you that compensation. So whatever you'd pay someone that had to replace you, I bet you it'd be a big number. $100,000, $200,000, $1 million. I don't know. I bet you it's a big number. Your company needs to pay you that because if it doesn't, it's just a matter of time before we start to resent our business. And if we don't do that, something even more insidious happens. And if we don't pay ourselves a salary, it's just a matter of time before the business starts glomming around us and circling us and depending on us. We become a crutch for the business. The business is like, I got this free resource, I'll keep sucking and leeching off a free resource. So we need you to take profit for owning a business. We need you to take compensation for working in the business. Tax, the number one biggest bill associated with operating a business that business owners are inevitably least prepared for is the tax bill. It's coming April 15th. It's right around the corner. And I used to be like, I owe how much to who every year? Do you know your business can pay your taxes? Doesn't matter if you're an S corp, C corp, LLC, LLP, hybrid. Doesn't matter the formation. Your business can pay your taxes. It just needs to do it correctly. By the way, Aaron Bennett's here. Aaron, do you mind waving your hand? Aaron. Aaron is a certified Profit First professional with the organization. If you have any questions, he's the guy to go to. He works with, uh, MSPs ensuring the system's deployed properly. And specifically, he can help you with this tax question. How do you have the business pay your taxes even if you're on a W-2 and it's being taken out of your paycheck? It can do it. The last component right here is OpEx. This is what you use to operate the business. Now I want to give you, uh, kind of an idea of what a business could operate on. Um, if your business does, we'll say, and you can actually use on the back of your worksheet is a chart, and the top, um, left is thing called a TAPS chart. We're just doing the basics of Profit First, so we don't have time to dig into it. Um, so ignore this concept of real revenue. That's something we talk about later. But let's just say your company's doing $3 million in revenue. If you're in $3 million of revenue It says real revenue range. We're gonna call that income. That puts you in column D in that chart in the top left. What we would do is allocate 10% of that money to profit. Uh, the next column is 10% to owner's comp, 15% to tax, 65% to the operation of the business. Now these numbers are based upon research that our company, our organization did. We initiated the research with about 1,000 companies. Uh, many MSPs were involved. This is what the fiscally elite do. So fiscally elite MSP, that's $3 million in revenue. At the end of the year, there is a $300,000 bonus check waiting for you. It's a whopping amount of money. You're also paying yourself a salary that you probably were thinking, uh, is right for what we'd have to pay someone if they replaced you. $300,000 tax. I'll tell you, if you're, you're getting a $300,000 bonus and you're getting $300,000 here, you're going to get a big tax bill. $450K is gonna be reserved for your tax liabilities. And then the last, the remainder, so that's 4, 6, 1, 5, am I doing this right, is it $950? No, 1, no, you know what I'm saying, 2, 1, 9, something like that. I'm just gonna keep on saying numbers, 6, 4, 3, 8, okay, until someone's like, that's it, let's just pretend $1.9 million, not K, $1.9 million we'll say. I don't know, it's something like that, but you know what I'm saying. But here's the deal. As you look at this chart, you may be thinking in your head what so many people say to me. They go, Mike, I don't know if you really know that much about MSPs today. To make $3 million in revenue, you have to spend about $3.5 million to make it happen. Okay. Yeah. Yeah. If you laughed, it's a little bit of an inside pain because you're like, I know. I'm saying you can do these numbers. A $3 million company can run off $1.9 million or whatever it is, and you can earn this if you understand the most important thing I can share with you today. And if you understand this one concept, this is the one big take-home. If you understand this, it will transform your business and profitability. In fact, it may transform how you manage many resources. Before I tell you what that is, I do wanna answer number 3, which is these 5 accounts. Income, profit, owner comp, tax, OpEx. Hopefully you can see them up here on the board. Uh, we also answered number 4. So number 3 was income, profit, owner comp, tax, and OpEx. Number 4 is the income account acts as a serving tray, right? Cash turkey. So for number 4, the first blank is serving tray. You only deposit income into it and then allocate— that's the carving of the turkey— money to the other accounts. So number 4 is serving tray and allocate. Now we're going to go on to what I think is the most important concept you can understand. We were talking about axioms early, established beliefs, something that people tell us is true that over time you find out may not necessarily be true. Another thing that I'm sure you're familiar with is the supply and demand curve. It's been written about in every economic book and it looks like this. As demand increases, supply increases to meet that demand. Economics 101. Well, there is a theorist and this is the answer to number 5 or 5. The theorist named Parkinson. So we're going to— the blank is Parkinson's Law. But there was this theorist. His name is Northcote Parkinson in the 1950s studying human behavior. And he says, while this may work in transactional economics, right, the more that people want to buy MSP services, the more you'll provide those services or competition will appear. He says, while it does apply in certain circumstances, the more common application when it comes to human behavior is almost always the reverse. He says demand doesn't dictate supply. He said it's actually supply that's dictating demand. And you already know this. We've talked about this. The bigger the plates get, the more we consume. The bigger the container, the more we consume. So what happens is the more cash that flows into your business, the more we inherently consume. It's human behavior. Have you noticed that over time your income maybe does something like this, but hopefully it's grown over time? Have you noticed your expenses almost uncannily grow at the exact same rate? How can that be? There's some kind of magical fairy watching over us called the Tooth Fairy and she takes body parts. Yeah, there's not— there's Parkinson's Law. The more money you make, the more you're going to inherently consume. So what we're going to do is we're going to intentionally constrain the supply. This was the rest of Parkinson's research. He noticed that when supply was controlled, Smaller plate, smaller bowl, less money available for the OpEx account. We constrain it. Demand is forced to be reduced, called forced frugality. There's less available, and you become very innovative. When you have less money, you find ways to get things done. Parkinson's law is wired into every human being. It's natural wiring. And when you really understand this concept, you'll see how you're behaving behaving with any resource. I'll give you an example, 'cause it's my favorite. It's gonna happen tonight to everyone in this room, and it's gonna happen when you get ready to brush your teeth. I call it the toothpaste experience. And this is what's gonna happen tonight. You walk into your bathroom, I'm staying upstairs, and I walked into my room last night, and there's one of two scenarios. You have a full tube of toothpaste or an empty one. In the full case scenario, like I did last night, you take the tube and you put it and you squeeze it and you put it on the toothbrush, put it on there. Nice long bead. I'm not that familiar with Phoenix or this area, but apparently there's massive mountains because the water pressure is off the charts in this hotel. I turn the water on, it goes kkkkkk, my toothpaste went flying across the room and I'm like, okay, but I had a brand new tube of toothpaste. Put it on there. Brush my teeth last night. When we have a full tube of toothpaste, we put long beads on. We can use it excessively. If we lose some, who cares? You got more toothpaste. But someone, someone in this room tonight will not have a full tube of toothpaste. It's going to be the empty, shriveled up, prune-like tube of toothpaste. And you're going to experience what I call the turtle head of toothpaste moment. And this is what happens. This is what happens. You walk into the bathroom. Oh, great presentations. That guy McCallum, what a stud. He was awesome. I'm just— that's called subliminal messaging. I'm just trying to— best presentation I've ever seen. My God. You, you get ready to brush your teeth, you open your bag, and you notice, oh my God, I forgot to get that new tube of toothpaste. So what happens? The first thing is all of a sudden you notice that working out has been paying off because you do a little flex in front of the mirror. That's when you start to twist and turn. You twist the tube, you're like, come on out, you son of a bitch. You're doing all these techniques, like you wanted this, now come on out. Another professional tip, don't yell, you son of a bitch, you wanted this in a hotel room late at night. Maybe a personal experience. Don't admit or deny. So you squeeze, you turn, it's not coming out. Some people get very innovative. I've heard people cut the back of the toothpaste tube off. Some people— you ever do that technique where you roll the tube of toothpaste? You learned that one in college. Yeah, look at you. You're like, oh yeah, I know how to roll real well. Yeah, it's a college experience. And sometimes, sometimes the only way to extract toothpaste is the turtle head of toothpaste technique. And what it is is that double thumb grip. You have that shriveled up tube of toothpaste, you put both thumbs behind it, and that's when you really start pushing down. You're like, come on, you dirty good for nothing turtle! You're pushing and pushing. Of course, it takes both hands, so you put the toothbrush down, you're pushing, and all of a sudden, all of a sudden, if you push hard enough, the turtle starts coming up. It's like, hey, were you looking for me? You're like, yeah, Good-for-nothing dirty son of a bitch. But the problem is this: the only way, the only way to get the toothpaste is by grabbing your toothbrush, and both thumbs are on it. So real quick, just real quick, real quick, you try to grab for the toothbrush and get it. And you know how turtles work. They're smart. It's sitting there looking around like, you son of a bitch, you're mine now. And you go for that toothbrush, and as you go, It's a turtle. It goes, did you call me a son of a bitch? Because you're the son of a bitch. And it cuts back down. Since you're laughing, you've been there. And if you've been there, you're the definition, the human definition, the walking definition of Parkinson's Law. Because Parkinson's states our behavior shifts based upon supply. If we constrain how much toothpaste is available, we start acting differently. And here's the funny thing. A new tube of toothpaste can last a month. I don't know, an empty tube of toothpaste, I bet you could stretch it for weeks and maybe sometimes a month. Little droplet, that's enough. Twist, turn, you keep on squeezing it out. When we constrain supply, we become very innovative. Roll, twist, cut. We change our behavior. We use cautiously and appropriately and we get the job done. That's why this works. If you allocate money this way, this is the empty tube of toothpaste. We have a saying at our office: if you can't pay your bills in this scenario, you can't afford your bills. If, if you have a— whatever your size business you are, and if you want to have a 10% profit, if you want to pay yourself appropriate salary, if you don't want to worry about taxes, this is what you must do. We're simply reverse engineering profit. We're taking the profit first. And if you don't have enough money in here to pay your bills, that means you can't afford your bills. There's something fundamentally flawed with your business. Maybe you have too many expenses. That happens. Maybe your margins aren't right. That happens a lot. Pricing's off. Efficiencies aren't there. We have to investigate what's going wrong. Don't take from your business. The second— so that number 5 was Parkinson's Law. The next thing I want to share is the sequence of how things operate. So the sequence— that's the answer to number 6, by the way, is the word sequence. But the second thing I learned from this fitness instructor is how we sequence things. Things is very important. If you want to eat a balanced meal, the best thing to do is not serve everything simultaneously because we'll default to what we like. Steak and potatoes, vegetables served. I'm a steak guy, I'll go for the steak. Vegetables will sit aside. But vegetables have all the vitamins and nutrients. So she said simply serve only the vegetables first, and then, um, after people consume some of that, then you serve the steak and potatoes because It'll bring balance to our diet. So the sequence of how we do things is very important, and it's already here on the board. When income comes in, cash serving tray, we allocate money toward profit. It is a— I put an R in a circle here— it is a reward mechanism. When you allocate money toward profit, perhaps you've never done this before, you'll see cash sitting there. It's like, yeah, I got some profit for the first time ever! And this is not an accounting profit, this is a real profit, what entrepreneurs see as profit. Cold hard cash waiting at your bank, going ready for you to use in the way you want. So first we allocate money to profit. That's a reward. Then we allocate money toward owner's comp. That's also an R in a circle there, uh, which is also a reward. We're paying you a salary. Next thing is we allocate money toward taxes in this sequence. And, uh, that's not a reward, by the way. Uh, it's, uh, we'll say it's a P. It protects you from apparently going to jail if you don't pay your taxes. So we reward, reward, we protect the business and protect you, and the final thing we do is serve the business. So the sequence here, the behavioral sequence is reward, reward, protect, and serve. Reward, reward, protect, and serve. It builds the muscle around profitability by doing this sequence. Now logically, these are just percentages of the same pie, so it doesn't matter logically what you allocate first, but behaviorally it matters in a big way because you must reward yourself to build belief in the system. You must reward yourself to build belief in yourself and continue. And then what's left over— here's the tube of toothpaste that's, uh, we're going to work with. So principle number 2 is the sequence matters. Washington's fitness instructor, she went on to share a third principle, and what it was was removing temptation. Now, I don't know how you are when it comes to temptation, but with, with food, for example, my biggest temptation is chocolate chip cookies. I'm addicted to them. I love them. The soft chew, double chunk, you know, all that stuff. The gooier, the better. My son called me. He's in college now, one of those goons. And he called me. This is about 3 months ago. He's like, oh, in May, there's this thing called the Spartan Race. He's like, I want to do it, Dad. Let's go do the Spartan Race. I don't know if you ever heard of Spartan Race. Never heard of it. Never knew. Oh, you know, never knew this thing. So I was like, oh, 3-mile run or something. Yeah, a little race. Fine. So I said, okay, no problem. Then Googled it. Oh, it's a 3-mile run while you get electrocuted, dunked in mud, and beaten by Spartans, apparently. I'm like, what the hell did I just sign up for? So I'm like, I better get ready for this. So I hired a coach and said, I'm going to do a Spartan race. He's like, are you crazy? That was my coach's response. I'm like, I guess. He said, well, first thing we're going to do is we got to start changing your diet. You got to get lean. So he goes, tell me about your consumption, your carbohydrates and so forth. I told him I love chocolate chip cookies. He said, you can't eat them anymore. I said, no problem. Off, done. He goes, no, no, no. He goes, I know how that game works. It's willpower. You say you're not going to do something, but we cave in. Willpower is like a muscle, it fatigues. I'll say no to the chocolate chip cookie until it's presented in front of me yet one more time. Like, well, let me take a little, little, little taste. And then I'm eating 15 of them in shame, watching a movie. So he says the only way to prevent temptation is to remove it completely. So I said, just have no chocolate chip cookies. In your house. So talk to my wife, I'm like, no chocolate chip cookies. She's like, all right, I don't like them anyway. And they're gone. There's no cookies in the house, um, so I can't eat them. This is temptation. When you start allocating money, when you start doing this process, you allocate money to this empty tube of toothpaste, you're like, I don't have enough money to pay my bills. Remember, if you don't have enough money to pay your bills, there's something fundamentally flawed in your business. We actually have to fix that. But the knee-jerk reaction I had, I said, oh, I'll just borrow from my profit account. And borrowing became stealing because I never paid it back. I'll just borrow from the owner's pay. And then this became a shell game very quickly. So we need to remove temptation. Here's how you do it. Whatever bank you work with today, um, keep working with them if you like them. And then we have to find a second bank. By the way, just a quick tip, because I talked to some people about banks and the charges and the fees. We do have a bank that I love called Relay. They're amazing. That has Profit First built into it. It's the only bank in the world that has Profit First built in, and it's no-cost banking. It's a real easy domain to remember. It's banklikemike.com. Very promotional, but it's banklikemike.com if you want to find an extraordinary bank for this. And it is legit the bank that I use for Profit First. First. It makes it easy, so check them out. All right, so what we're going to do is, whatever bank you're with today, if you like them, keep working with them. Otherwise, you can find a different bank. We're going to take the profit and we're going to transfer it to a second bank. Why? Because we want it hidden away. I call this the profit hold account. We're also going to do the same thing as your taxes. Taxes are very tempting to borrow from that, so we're going to have another account at this second bank. Now, the tip here is we want it inaccessible. I have an entrepreneur I met. This is about 8 years ago now. Ironically, he just texted me this morning. He wants to chitchat. His name is Peter. He lives in New York. He has an $8 million— had an $8 million business. He saw a Profit First presentation when I met him 8 years ago. He came up afterwards and said, I'm going to do your system. I said, great. So tell me about your business. He says, $8 million in revenue. Like, all right, whatever. I hope you never judge revenue as significant. Revenue is totally irrelevant. Who cares? I am more impressed by a company that does $200,000 in revenue and the owner's taking home $190,000. I want to know about that business. So he said, I'm taking $8 million. I'm like, okay, whatever. I said, tell me how much profit you have. And that's when he's like, oh, well, that's, oh shucks, because I lost $500,000 last year. I said, oh, okay, what was the year prior? He's like, that's the year I lost a million. I'm like, okay. I said, I think I know why you're doing this system. He's like, yeah, because I'm desperate. I'm desperate. He— what he knew was he set this up and he said if he starts allocating money this way, he's going to steal from himself inevitably. He couldn't stop that behavior of always trying to use all of the toothpaste. So he said he's going to set this up. He found a bank in Pennsylvania. So he's in New York City. He traveled across New Jersey to Pennsylvania, is about a 3-hour drive for him. He found a bank there, small little bank, walks in and they welcome, they say, welcome to the most convenient bank in America. And he goes, ironically, I'm not looking for the most convenient bank in America. In this case, I'm looking for the most inconvenient bank in America. I want no access to this money. And what he told the bank manager, he said, I don't want the ATM card. I don't want the online checking and all that stuff. I simply want to put my money in, deposit here and sit here. And when I need to withdraw it for a profit distribution, I'm going to drive 3 hours to come here. So I have a real hard, long conversation with myself. Am I using profit for the only reason you should use it to celebrate and reward yourself? Or am I stealing from my business and not figuring out how to make it healthy the way it should be? By the way, a quick tip that Peter shared with me that I'll share with you. If you do look for a new bank, use this line. He walked into this bank when he was looking to get set up and he went to the teller and he said, oh, how can we help you? He said, I'm looking for a new bank because I'm looking to store money at the bank. Use that exact line. I'm looking to store money here. I don't know if you know, they have like this, this alarm system, the silent alarm. When someone uses the line, I'm gonna store money at your bank, there's another one apparently they hit because the store manager came running out like, oh my gosh, welcome to the most We're the leading bank in America. We're— we love customers who like to store money with us. So use that. Our own office, uh, I— the president of our company, her name is Kelsey, and we have a profit account at Second Bank. It is online banking. She has a username. She doesn't have the password. I have the password. I don't have the username. So when we need to log in, it's always and only to reward shareholders. We actually do profit shares with our employees too. When we do that distribution, she enters the username, then she puts a piece of tape over the screen. I come in the office, she leaves. Put it— I know it sounds ridiculous, but it's like turning the nuclear keys. Like, it's like 3, 2, 1, release. System's armed. And then we can do distribution. I can't steal from myself. That's the key. We also do with the tax account. Money piles up here. Remember, your business can pay the tax liabilities of the owner of the business. But taxes only come around quarterly or annually, depends how you do it. Uh, it may reimburse you quarterly. We're going to hide it away the exact same way. So number 3 is to remove temptation. In fact, if we look at our, uh, little, um, worksheet here, number 7 says if something's not accessible, we don't use it. So the word's accessible. The fourth and final principle. I'm working with the— or watching the fitness instructor, and she was talking about diets. And remember what translates from physical fitness goes to physical fitness. She shared the concept of our diets and that most people eat 3 meals a day. And she said that's actually not a good discipline. In fact, it causes what's called peaks and valleys. Maybe this morning you skip breakfast or whatever, and then by lunchtime you're starving. So we go into this valley and we're like, I gotta eat. And then we overeat, a gluttonous state, and like, I can never eat again. And we go through these valleys. So one concept is eat small meals throughout the day, about 5 meals a day. There's also concepts around fasting now, but she was talking about these 5 meals a day. And she goes, that, that brings about a nor— a normalcy. Interestingly, in our finances, it's gluttony or, or starvation, and it's constantly like this and it can change in, in one day. You know, big deposit comes in today. If I ask you how business is, most entrepreneurs like, it's great, we're crushing it. Big deposit. Then you pay all those bills next day. How's business? It's, it sucks. I don't know how I'm surviving. It's this kind of bipolar experience. So how do we control it? Well, we're going to set up a technique we call it the 10-25 rule. Aaron from our team over there can walk you through this in detail, but this is exactly how it works. Today is, I think, the 15th. Yes, today's the 15th. These are the days of the month or week— the month. The next trigger day, today being the 15th, would be the 25th. Then the next trigger day is the 10th, 25th. And this chart just continues on into perpetuity. 10, 25, 10, 25, 10, 25. The horizontal axis here is your income account. This is the days of the month. Here's what happens today. Money will come into your income account. Remember, this is a depository-only account. Since today is the 15th, money comes in and it sits there. It's the cash turkey. You never spend a penny from it again. Then tomorrow some more money comes in. And some more money. And then finally the 25th will come in, and on that day every penny in the income account gets allocated out to all the other accounts. Profits funded, hidden away in a profit hold. Owner's comp is funded to pay yourself a normal salary. Taxes reserved, hidden away in the profit— in a tax hold. OpEx, the empty tube of toothpaste, is now fueled. We can pay our bills, operate our business. Then on the 26th, more money comes in, more money comes in. And then on the 10th, all the money's allocated out and it can look something like this, you know, because money changes over time. Yeah, exactly. This is how your business looks. Yeah, I actually was studying your business and this is it. What happens is this. There is cash flow variability. Not every week's the same. But you told me and I said this is a wonderful town. You said most of you in this room are checking your bank account monthly, weekly, some daily. That's awesome. That is the best behavior because what I want you to do is when you log into your bank accounts, you log in, you see the income account, look for what the average deposit is, and you'll notice on these particular trigger days, the 10th and 25th, you expect a certain amount of money. I'm just gonna pick a random number. We'll say it's $10,000 every 2 weeks. What happens is When you log in, sometimes the money will actually be more than the average you expect. Oh, it's $15,000 or $20,000. That's a call to action. When it's more than you expected, call your Profit First professional, call Aaron, call an accountant or bookkeeper and say, hey, we have more money than I expected. What happened? Let's do more of that. Other times, woefully, it will be less, sometimes far less. Than you expected. That is a call to your professional and say, I expected $10,000, there's only $3,000. What went wrong? What's not happening? What's not happening? That's right, fix this. What this is is the most simplified version of a cash flow statement. A cash flow statement, its intention, its core intention is to show you the delta, the change in cash flow, so you can take action on it. I don't know how to read a cash flow statement. I question if Keith, my accountant, knows how to read a cash flow statement. They are complex and confusing, but I do know how to log into my account every single day. I did it this morning and check. And on the trigger days, which today's not a trigger day, but when it's a trigger day, I know exactly what I expect to be in there typically. And when it's different, I call Debbie and say, what's going on? She's our bookkeeper. And Linda, call them and say, what's going on, Debbie? What's going on, Linda? Uh, how do we fix this? And I get insights on my business. You don't have to change yourself. Do not change your behavior. Channel what you're already doing. Log into that bank account. There's another thing that I love to do, and it's every, uh, 90 days. Every 90 days is a profit distribution. Now we do it on the calendar quarter. We are 45 days away. March 30th will be the next quarterly profit distribution. I started this process for myself over 15 years ago. I've had— it's like 57 consecutive quarters of profit distributions, uh, and there's another profit distribution coming. And I'm going to show you in a second just how that works. But the key is to distribute profit every 90 days. The money that's accumulated in the profit hold— I think I put on this side— that we transfer from over here will accumulate, and we're going to allocate the money out to the shareholders. A reminder, when profit gets distributed, it only goes to the shareholders of the business. And/or if you want to share as a team, you can do a profit share. That's what we do at our organization. Here's how it works. That profit hold— let's say, uh, at the end of this quarter, on March 30th or 31st, whatever it is, that you have— we'll just pick a simple number— we have $5,000 that's accumulated in the profit account. So this is profit hold. What we're gonna do on that 90th day is we're gonna allocate 50% of that money to you as a reward. So you get $2,500 that comes out as a distribution to the shareholders. Maybe share some with your team if you so decide. $2,500 stays within the account. Now let's say next quarter, uh, you have a, a, a consistent profit contribution. Let's just say it's $5,000 added. So now you have $7,500 sitting in that profit hold account. Your next distribution is gonna be, uh-oh, now the math gets hard for me. $300, $3,750 and $3,750 stays. And then next quarter, maybe you have $5,000 again. Maybe you have a flat business, uh, in profit, but I bet your profit will grow. Which accumulates to $8,750. Uh, you do the next distribution, it's going to be 4— we'll say $4,375, I think it is, something like that. But what you'll notice is every, every distribution, even on a flat business that's going $5,000, $5,000, $5,000 in contributions, has a growing profit distribution. It's a mathematical anomaly. It'll happen for a certain number of quarters before it levels out, but chances are your profit will actually increase. So you're always taking a larger profit distribution to yourself, which is another technique, behavioral technique, of building momentum. As profit grows, it feels good. But the other interesting and critical component is the reserves in your business also grow. So there'll be another one there, but it's also growing. It's called cash equity. As your business, uh, profitability grows, uh, and you reserve cash, the more valuable your business becomes, and it prepares you for a rainy day. One of my favorite letters I ever received, uh, and was an actual letter, was from a guy named Jesse Cole. I don't know if you know that name. Anyone ever hear of the Savannah Bananas? Any Savannah Bananas? Okay. Oh good. So they're, they're getting out there. If you've not heard of the Savannah Bananas baseball team, my God, Google these clowns. They are incredible. 7 years ago, right when they were starting, I got a letter and a baseball card. With this guy in this yellow tuxedo named Jesse Cole. And he said, we implemented Profit First for our baseball team. Now, if you don't know Savannah Bananas, they're a minor league team, not even minor, they're called an all-star team, but we'll call them minors. The average attendance for a baseball game in the minor leagues is, if you're lucky, the big teams get about 300 guests per game. The average ticket sells for $10. So your revenue per game is about $3,000 to operate. A game of that type usually costs about $5,000 to $6,000. So the traditional owner loses about $2,000 to $3,000 per game. But it's a, it's a badge of honor to say you own a baseball team. That's why most people do it. Jesse went in the business to be profitable and to have impact. He really wants people to get back to family fun and get outdoors and get off our phones. He implemented PropFirst, him and his wife, from day one. They bought this baseball team. They ran the numbers. The $3,000 came in, they did the allocations, they had $1,500 to operate, and they said, well, there's not enough money to operate the business. Instead of doing the, well, I guess this doesn't work, he said, well, this is my empty tube of toothpaste, what can I do with it? Among other things, they said, we gotta cut some costs. We can't have any kind of, you know, people dressed in costume and the, and this, the Mascot running around, can't afford it. Can't have a scoreboard. To maintain a scoreboard is too expensive and the electrical cost. So he's like, how do you run a baseball team with no scoreboard and no mascot? He said, well, we have an audience of 300 people. What if we got the people to, during, between innings, kind of like a boxing ring, walk with the scores and show it around and get the audience involved? He said, what if, what if the audience became our cheer squad? And that's when they started the Grandma Bananas. The rule was you had to be 80 years or older. True. Teeth were optional. Um, and you're on the grandma squad and the audience lost their mind. Uh, fast forward, within one year they sold out every game. Their stadium seats 5,000 people. 5,000 people. Um, they've sold out every single season, including this year, 2024, and 2025 is already sold out. If you want to get a ticket, tickets are cheap. If you can get a ticket, they cost about 50 bucks or 40 bucks, or you can get one on StubHub probably for $700. They're the hottest, hottest ticket in town, the Savannah Bananas, and they are insanely funny. It's the Harlem Globetrotters now for baseball. Now Jesse and Emily are innovative people. They are marketing geniuses. It is the most entertaining experience I've ever had. Actually, I went with some friends down there that are in this audience to see a game. The thing is, they also did profit first, and they started to squeeze the profitability. Today they are the most profitable baseball team in the world, in the world, including Major League Baseball teams. Now this is on a percentage basis. On a percentage basis, they're more profitable than any Major League Baseball team. Yes, the Yankees and the Red Sox and all these different teams make billions. The Savannah Bananas are not in the billions, but they're in the high tens of millions now. And they are extraordinarily profitable and the impact they're having on, on our society is amazing. So check 'em out. That's how you allocate profit. Um, the last thing I wanted to share with you though is this. As you look at this, we just went through the entire process of Profit First. I mean, there's just tons of stuff here and my risk, my fear is you're overwhelmed. I mean, we went through so much stuff here that you're potentially overwhelmed. I did a keynote in Copenhagen, Denmark. This is about 6 years ago, 7 years ago on Profit First. Big audiences, 1,000, maybe even more than that, but say 1,000 people in the room. I present on Profit First, ask them the same questions you did. I asked you, do you check your bank accounts weekly? Do you have a primary checking account? All the same answers. I'll tell you, business internationally, it's all the same. Those businesses were surviving check by check, just like many of us are. It's all the same. So I teach them Profit First. Uh, we, we spent 75 minutes on it. The, the full basics are, are 3 hours and we went through all of it. At the end, I spoke with so many people. I was there for the entire day and they're like, I'm gonna do this and I need this. My business is struggling. Um, I don't have to change a thing about myself. I'm gonna do this. They said, the host says, can you come back next year and do the advanced? This is the basics, the advanced stuff. I said, yeah, yeah, I'll come back next year. I came back one year later, same group. I start off by saying, hey, good to see you again. Who saw me last year? Of course, all the hands went up because the same group. I then said, you said you were struggling, you're surviving check by check. I taught you the system. You don't even change who you are. You work with your bank. You don't have to read income statements or balance sheets, nothing. Just do this. Who's doing it? And all of a sudden, everyone looked down and starts taking notes. I'm like, what's going on? No one can make eye contact. I think one woman started vomiting when she looked at me. She's like, mm. And I'm like, what the hell's going on here? And then I went beet-faced. My face went beet red. I'm like, are you saying you didn't do it? You need to be profitable. I gave you a solution. You can do this on a cash basis. You'll have cash waiting for you. What? You're not doing— what's wrong with you, Copenhagen? Which, by the way, speaking tip number 2: don't yell at an audience. Don't dress like a bartender and yell at the audience. They don't work. And it was in that moment I said, oh my God, I taught this system wrong. That's the day I realized I was teaching it wrong. That day I fixed it, and I fixed it ever since. I haven't taught you yet. This is actually the most important part. I learned that this is overwhelming. It's too much. You may be skeptical. You may say, I don't think this is gonna work. Or you may say, I love it, but it's overwhelming, and tomorrow you go back to the old way. The risk is you're not gonna do do it. So I want to tell you a real simple way to become profitable. In fact, I'm going to deliver my promise. I said you're going to be profitable by tomorrow. This is where I deliver on it. First, let's finish out our worksheet here. Number 8 was peaks and valleys. Number 8 was peaks and valleys. Number 9 is profit is used to celebrate, plow back, reinvest. Is the first 3: celebrate, plow back, reinvest. The next 3 is the money into your— plow back the money into your business. You're training yourself to completely disregard profit and avoid the call for innovation, efficiency, and frugality. So the next 3 are innovation, efficiency, frugality. By the way, I know I spoke quickly and maybe you missed some of the answers here. The answers are already on the worksheet at the very bottom. I don't know if you saw that. Yeah, you're like, I didn't have to be here for this stupid presentation. No, you didn't have to be here. You didn't have to be here. Yeah, all the answers are there. There you go. So I'm in Copenhagen and I'm like, you're not doing this. And then I realized, my God, this is overwhelming. There was a study around this concept of raising the bar. This is what this is. You know, play bigger, push harder, raise the bar. By two authors, Dan Heath and Chip Heath. They wrote a book called Decisive, and in the book Decisive, they talk about how we make decisions and how we see them through. And they came up with this concept of lowering the bar. They found that we may actually be more successful not by raising the bar, but by lowering it. They ran a really interesting test. Came to physical fitness, which translates to physical fitness. They took 200 candidates who are looking to get cardiovascularly fit. The standard regimen if you want to be cardiovascularly fit is to run 5 miles 3 days a week at a 10-minute clip or faster, and you'll achieve a high level of cardiovascular fitness. The control group they put over here, given the standard, the researchers said, do you want to get cardiovascularly fit? And the 100 people said, yes, how badly? So badly, we need this. They said, great, start running 5 miles 3 days a week now, go, 10-minute clip. And they go running out. This group was a test group. Researchers went to them, They said, do you want to get cardiovascularly fit? Yes. How badly? So badly. They said, great, we have a regimen for you. But before we tell you, we do have one question. Do you like television? And the group's like, yeah, yeah. One guy's like, Ted Lasso changed my life. You know, they're like, great. We have another question. Do you sit on the couch when you watch television? And the group's like, yeah, yeah, I do sit on the couch. Huge television. They said, great, here's your exercise regimen. Next time you turn on the TV, you can't sit on the couch. You simply need to stand in front of it. Just do that. Talk about lowering the bar. That's below the Earth's crust. That's the lowest bar you can set. 2 weeks into this experiment, they come back. The first group that was running 5 miles 3 days a week— they had 100 participants— it was over 90 people were unable to do it. 10 people were left. One dude had a heart attack. 90 people— 10 people left. They said to these 10 people, you're the last one standing, represent the group, kick them out the door. Go, go, go, 5 miles this week. This group had a 100% success rate. Lower the bar. They said, hey, since you're standing in front of the couch when you watch TV, would you be willing to simply start marching now for the next 2 weeks whenever you're watching television? Lower the bar. They're already standing, marching. Sure. After 1 month, this group was not able to sustain it. And my My tip is if you are not already cardiovascular fit, don't try running 5 miles 3 days a week at a 10-minute clip or faster. You may be the next heart attack victim. This group had a 98% success rate after a month. 98% of people were doing this, which does beg the question, those 2 other people. They're like, oh, did they say march in front of the couch or sit back on the couch and eat Cheetos? I don't know. But the experiment continued. The research for this group, the next 2 weeks became doing jumping jacks and different calisthenics when commercials came on, then became running outside and going to the mailbox when a commercial came on. Ultimately, they built their way to it. It did take 6 months, but for 6 months, every— over 50% of the group was running 5 miles 3 days a week at a 10-minute clip. The majority succeeded took time by lowering the bar, and everyone failed by raising the bar. That's why I realized in Copenhagen, this may be too much, too fast, too soon. It may overwhelm you, and it may give your business a heart attack. So here's the things that will transform your business and make it permanently profitable by tomorrow, and it is the lowest bar I can set. You have no excuse not to do this if you want to be profitable. I promise this will deliver it. Here's the two steps. Step one, call your existing bank, or you can call Relay, but Call your existing bank, set up one account. Ignore all these, set up one account, checking or savings account, I don't care, whatever it is, and call it profit. That's the first step. Set up one account called profit. Here's step 2: starting tomorrow, anytime money gets deposited into your business, take 1%, small amount, 1%, and put into profit. That's it. If $1,000 comes in tomorrow, I'm saying take $10. That's 1%, and $900 Yeah, $900 and $990 are left to operate your business and $10 is in profit. If you can run your business off $1,000, you can run your business off $999. But what, what will transform you is you'll start seeing that profit can accumulate. I'm proud to report we have over 800,000 companies doing Profit First globally now, and we're approaching a million, and I'm hoping we're going to this year, and I think we will, and we can do it if another couple hundred folks join us. And doing this. I would say most of them, almost all of them started off very slow and they let it grow. They roll out the entire system maybe over a year or two, but they don't not start. They start immediately. They start next morning. Now you know how to do it. My final thought for you is this. It's in the last answer. We've been told for decades that profit comes last. And the answer to number 10 is what comes last gets ignored. That's why businesses aren't profitable. This is logical, but it's not behavioral. But what comes first gets done. Starting today, start taking your profit first. Thank you very much, guys. Appreciate it. Thank you. Thank you. Rock and roll. Thank you. Thank you. Thank you. Thank you, brother. Thank you. Oh, I appreciate you guys. Woo!