Profit First for Restaurants with Mike Michalowicz

Hey, and welcome to the Restaurant Coach podcast. It is the cure for the common restaurant. I am honored today to have author, speaker, entrepreneur, Mike Michalowicz on the show today. Mike, it's awesome to have you here. Thank you so much for doing this, Donald.

It is awesome to be here. Thank you for having me.

You know, I. I got introduced to you and your books. Actually, one of my clients, one of my restaurant clients, my coaching clients, recommended your book the Pumpkin. The Pumpkin Plant First. And I started with that, and then I was like, wow, you know this, I like this book. What else do you got? And then I read your book Profit first, and I'm telling you, it was a game changer on how I approach profits. And now I've actually, I really coach my restaurants about profit first. So why don't you talk a little bit about profit first, how the idea came about, and then we can jump into some applications for restaurants specifically. How's that?

Yeah. So I love it. I love it. So every book I've written has come about in part as actually to satisfy my own challenges. So I'm an entrepreneur my entire adult, adult life, ever since college. And, well, I've had outwardly what you define success. I actually had two exits and I became very wealthy. For a short period of time, I didn't know how to operate as businesses. I eradicated all that wealth I'd accumulated by starting a third business. That was a calamity. And I hit this point in my life where my financials were so bad, I was so overworked, over stressed that I went into a deep depression and there was trigger moments and all stuff. I went into a deep. I went into depression. An extended depression is probably a better definition. And this is not diagnosed by a therapist, which we all should have. Not diagnosed by a therapist. This was self diagnosed. I tried to drink my way out of it. Apparently it doesn't work. So I started to, at a friend's direction, start journaling. And that's a guy's term for diary, right? He's like, start writing.

Yeah, of course. That's the guy. We'll talk. Yeah. We don't say. We don't.

No, I don't. I don't. I don't have a diary, but I have a journal. So I started journaling and it was interesting. I started questioning my understanding about business, and that became the precipice for Profit First Pumpkin Plan. All the work I do with Profit first specifically, I said, why is it that almost all of us start our businesses with the intention for financial freedom, personal freedom. That's why we do it. We want to do what we love, and we want to make money at it so that we don't worry about bills. How come? That's the reason we do it. But that's the two things that don't happen. We work our ass off, we make no money. That makes no sense. What's wrong with me? What's wrong with us? And that's when I discovered there's nothing wrong with us. It's the foundational formula. We are told that it's sales minus profit. Sales minus expenses equals profit. That profit's the bottom line or the year end. And all those things mean that don't worry about profit until the future. And that's the problem. Profit must be a habit. We must bake into our business. It's not an eventuality. That's why I wrote Profit First.

Awesome. Yeah. One of the things I think that holds a lot of restaurants owners back is that we have outdated mindsets just because it was the way it's always been done or the way we were taught. And that's the way the formula. We think we have to follow that formula. Yeah.

It's wired into. So it's funny. I'm working. I'm working on a new book right now around marketing, and I think there's a. A significant enhancement over traditional marketing in this new book I'm working on. But that's my own bias, of course. As we're testing, I've been testing for 10 years on different clients.

The.

The biggest challenge to seeing positive marketing results is that they rely on the best practices and what everyone else does. Therefore, it becomes very common. Like, everyone else runs Facebook ads. How come it doesn't work? It ain't working for anybody. It works for the first guy. But everyone else is saturating it, you know, with. With profit. Everyone's like, well, my accountant says, do it this way, and it's not working. To repeat that process is fruitless. It. It keeps us stuck there. But the challenge people have is when they hear profit first, which is sales minus profit equals expenses, meaning every time a deposit comes in, every time a customer comes to your restaurant, a percentage of profits first allocated people like. But no one does that. How can that work? It works because no one's doing it. Whatever it's doing isn't working. So we need to try something new. It's very hard to digest that, you know, in our minds.

Yeah, it's really hard. It requires a huge kind of paradigm shift in your Mind?

Yeah. I thought it was bullshit. Like I had to do this out of desperation for myself 12 years ago. And I'm like, I'm like, this is so stupid. It's a shell game. But I can't think of another way to manage my money. Let me just try this. It was kind of an awakening to me and you know, Now I've had 46, 47 quarters of consecutive quarters of profit distributions. I just did it again. And at the end of the year after, you know, we're buyers of this recording, we're two and a half months out, another profit distribution coming out. And the, the confidence it gave me and the confidence it gives people is it's game changing.

Yeah, but people understand, like, you know, lack of profits really affects so many other areas of your life. It kills your, your confidence, that affects your sleep. Yeah, I mean, come on, how many. You know, I was a restaurant owner too. You know how nights I'd sit up in the middle of night, wake up going, oh, am I going to make payroll? You know what I mean?

Totally affect your health, you know. Yeah. You know, it's interesting if we look at Maslow's hierarchy of needs where he articulated what we need. The base levels are survival. The most foundational level is what's called physiological needs, which is food, water, breathing. So we're doing that, we're still breathing. We're, you know, maybe we're eating right out of the fryer just to sustain, but we're eating something. The next level of Nizi said is safety needs which are financial. It's a roof over a head. It's not the risk of, of surviving day to day. Only once we achieve that do we experience other levels. He has three levels above that. Living life's purpose, which is for him it was self actualization, I believe. But so, so the, the thing is we're at this fundament fundamental level and we're trying to live a life of purpose and happiness without addressing the core safety need of financial security. According to Maslow, it's impossible. And according to my experience, I concur when people do not have financial security. The other levels, you may touch it for a day and like this was a great day, we go right back to that desperation.

Exactly.

Once it's addressed, we can live at a higher level.

I think I call it living on the roller coaster. Most restaurant owners live on the roller coaster. Man, you have a great week. It's awesome. You got money in the bank, you're happy. And the next week you're just like you're, you're, you're hating life.

It's like crack cocaine. Not. That's not experiential, by the way. I'm just, I'm just saying it's like I presume like crack. Okay. Like I will meet with. There's a guy who owns a deli down the street that's a form of a restaurant. I guess it's a food service. I go to him and I say, hey John, how's business? And I know he's a small business owner because there's always one or two responses. It's freaking awesome. We got catering job. Or it sucks.

Well.

Or dying. It's solely reflective of his bank balance. If he has a heightened state, if he's have, has a lot of money in there, he's a heightened state of emotion. If there's no money in there, then it's a lower emotion and it is a roller coaster. It's very bipolar.

It is. And I, I always tell owners, like so many of them, just like they judge their day by their bank account balance. Yeah. And so, you know, and, and I started another company with a partner of mine, Darren Manzari. We started a company called Restaurant KPI Master, where we measure and manage restaurant KPIs. And one of the ones we look at is. And one of the things we look, we talk about is vanity metrics.

Yeah. Yeah.

And I'm gonna, I'm throw a quote out from your book, Profit First. Revenue is vanity. Profit is Sandy and cash is king.

Yeah. And that quote, by the way, is not mine. I don't know, it's, you know, from Anonymous. That's been around. But it speaks an absolute truth. I was in an organization of entrepreneurs for 18 years of my life. It was the probably the best experience of my life. There's also an interesting phenomena happened. Everyone in there was bragging top line. It was constant chess. The men and women all the same. Oh, your business did a million. That's cute. I'm doing four and the guy is doing four. The woman comes in, she's like, I'm doing 10. And it's this constant top line think. It becomes this perverted belief that if we simply increase revenue, that magical switch is going to happen where profit pours into our pockets and that's it. It never happens. In fact, I would argue profits. I'm sorry, Revenue is not only vanity, it is stress. Because if you think about this, the more sales you have for your restaurant, the more obligation you have. Right. So the more you sell, the More you have to deliver on your product or service. Right. So a customer bought something. You have to deliver on this. Well, the more sales we have, the more we must deliver. As a small business owner who carries a business on their back, usually it means more stress on the owner themselves. So more sales, which we think is going to be the panacea, it's going to bring in all this profit actually brings on more stress and burden. It puts us more in a check to check survival. So we need that balance. We listen, sales is the source of revenue. You have to have. Source of cash. You need that. But once you have cash, you need to capture it. That's the balance. It's the net. And that's what profit first does. It captures profit.

Exactly.

Brings it to equilibrium.

Yeah. I've seen restaurants do 3 million in a year in sales, zero profit. Yeah. I'm like, you're working this hard for nothing.

Yeah.

You know, it's stupid.

Yeah.

And then, you know, then Covid hit, right?

Yeah.

And then restaurants really. I mean, that vanity metrics really killed a lot of people because they were used to doing so much volume and sales. And then when, you know, Covid hit, it really killed their sales. So what I have people doing now is I have them. Let's not focus on your sales. Let's focus on your profits.

There's a guy in town. I live in a little town in northern Jersey outside New York City. And most restaurants responded right. When Covid hit was like, oh, we're just gonna close the doors and wait this out a certain point. Like, we can't do that. We're gonna do takeout and delivery. Sadly, I would say maybe 60%. Like, some restaurants just went out of business. Other ones that were gonna do takeout, they're sustaining. But one guy, only one guy I know of, said, how can I make this an opportunity? And what he did is he teamed up with a food truck. So what he does is his restaurant isn't serving anymore. It's a cooking center. They're preparing meal after meal. They pack in a food truck. It's hot meal delivery into your neighborhood. And they just sit there and say, listen. They'll email or ping out to a community and say, we have our food truck in the area. We can get a meal to you in five minutes that's hot and ready to go for your family. Do you want it? Yes or no? They are doing where the takeout guy says, well, we can do delivery, but the kid, you know, the drive out there is going to be 45 minutes. It's going to be there in an hour and a half. And, and they get one meal out. This guy is getting meal after meal out, five minutes. Pop, pop, pop, pop, pop, pop. That's innovative thinking. And his profitability, I understand I'm not working with him personally, has gone up substantially.

So if, if a restaurant wanted, you know, number one, get the book, I'm, I'm gonna recommend everyone out there listening get profit first. Now once you get the book, how would a restaurant go about implementing. And you actually have certified profit first accountants, right?

Yeah, people are certified profit first professionals who train this specific thing. It's kind of going to a gym, right? Listen, if you want to exercise, join a gym. And if you can hold yourself accountable and show up, that is a massive win, do that. But if you struggle with the accountability or you don't know what the right exercises are, if you're afraid of injury, you want to do it right. That's, that's when you hire a trainer. So that's what proppers professional is. They're excellent at holding people accountable and doing it right. But I'll tell you what the first step is. Regardless of if you decide to read the book or hire a professional, the first step is to simply set up one account. So the essence of profit first. And I teach it in the book, but you set up a account, a physical bank account at your bank, because normally all the money comes into one account. And if we see it, we spend it. If we don't have it, we panic. Now when money flows in, we're going to start allocating it into these different envelopes. We're going to pre allocate it to its intended use, but before you spend it. So step one is set up a profit account. Step two is start allocating a very small percentage, maybe even just 1% of that income. So a thousand dollars comes in. 1% is 10 bucks. You put 10 bucks into profit into this account, it starts accumulating. You run your business off the remainder. What this starts doing is now you're taking a profit first. It starts building that mental confidence, oh my gosh, I can take the profit first. It can accumulate. It also brings about what's called Parkinson's law. It's a theory I talk about in the book, which points to when there's less supply of money to spend in your business. Of course there's forced frugality. More importantly, that brings about innovation. We find alternative ways to get the same results. That's where the power is. So I encourage Everyone, I mean you can do it right now. Call your bank, set up a savings account called profit and allocate 1% going forward. If you do that, you've taken a small step that will have a massive long term impact.

Exactly. Yeah. And that's the biggest thing. Again, don't wait until traditional thinking is take profit at the end.

Yeah.

First pay yourself first is there's that great book out there, classic book, the Richest Man Babylon.

Oh yes. You know, some people are like, some people come to me say, oh, you know, this is, this is brand new. It's never worked in business. I'm like, it's worked in our personal lives since day one. Yeah. Richest Man Babylon, think and grow rich. The modernizations of those books are like Dave Ramsey's total money makeover. Those systems work because they allocate money to its intended use. They hide the money away from that one major account where we just say that's why I have to spend allocates it out. And now when we, we make a decision like I want to spend money, well, you go to the account that, that has the money for that intended use and you know what with, within what confines you need to work. So this is the old age envelope system that's been around price since sometime BC I simply translate it to business and it works just as effectively, if not more.

Yeah. After I read Profit First, I set up my bank account like that.

So I have a. I do the home too. I do my business, do my house.

It's awesome.

Let me tell you. You know, there's a saying that being a business owner is like a parent child relationship. Like you're the parent. It is, yeah. Well, you know, I'm gonna take it one step further. I would say it's more than that. I think it's conjoined twins. Like we share common organs. If my business is tanking, I'm tanking, tanking. If I'm struggling financially at home, my business is going to feel the blow. So what I do with Profit First, I teach it in the book set up for your business and, and also find a complimentary system. I call it Profit first life to do it in your personal life. And they link in together and now you have financial strength throughout. Yep.

Yeah. One of the things I talk to my clients about is like life, work balance. I always say there's no such thing really as life work balance. It's just life. When my business sucks, my personal life sucks. When my personal life sucks, it affect, it impacts my business. It's just Life, man, you gotta learn how to just like, you know, you have to juggle it all and not try to seek balance integration.

I agree 100%.

Exactly. So if someone wanted to get a hold of a profit first, you know, certified person, they would just go to your website.

Yeah. So the best place to go right now is go to profit first professionals dot com. You can google it or just go right to the domain and then there's an option that says hire proffers professional. What we do they think is unique is we don't find you that local counter bookkeeper. The fact that they're in your geography is nice. But the question is, are they experts in restaurants? Like do they understand the space? Because a profit first implementation for a restaurant versus one for a manufacturer versus one for a law firm are all different. There's different flavors. The core framework remains the same. So we have profit first professionals who specifically work with restaurants. If you go to the site, click on it, we'll link you up with the restaurant experts for profit first.

Awesome. In fact I, I can give a testimony here. I have a couple of my private coaching clients that actually use a profit first specialist and they rave about it saying it is the best thing they have done to change their mindset. And also, and one of the things I work on is, you know, it's habit. You got to create new habits. I always tell people your restaurant is a reflection of your habits.

In fact, I think in the corner the core habit is just taking your profit out. So it's funny, one of the tenants of being a profit first professional is you must enforce with all of our clients and a quarterly profit distribution. So when the end of the quarter comes, we take money out. If you have debt, if you things credit cards you need to pay off, we still do that. But there's always a reward mechanism. One of the keys establishing a good habit is to have reward.

Exactly.

Bad habits have rewards. Like you smoke a cigarette. We all know those are cancer sticks. We don't need to hear that again. But we do know that when you take a quick hit, it's like oh, the sense of relaxation, of good feeling you're getting a reward. Well, profit first we set up reward mechanisms so you build that habit and part of it is making sure that you're getting a bonus every quarter.

Perfect. Perfect. And what's your next book is going to be called?

Different is better. It's coming out in 2021. My most current release is called Fix this Next and that's out there actively right now. And that book was what I determined as a thesis is the biggest challenge business owners face is knowing what their biggest challenge is. We can fix profit, but we may have to fix efficiency. You may not have a hiring practice that's working. How do you know which one you need to do next? That's what Fix this Next is about.

And I highly recommend, you know, and I'm going to put the link up for Mike's website. You know, mikemcalowitz.com go to his website. I'm telling you right now, this man has tons of resources available to help entrepreneurs. It doesn't matter what you know, industry you're in, small restaurant, bigger restaurant. There is something on his website to help you. It's helped me and I'm sure it will help you. His fix. Fix this Next. He has like a little quiz, right?

Yeah, Free, totally free evaluation.

And the quiz is really cool because it, it kind of told me what I need to work on next.

Yeah. The interesting thing about entrepreneurial human nature is that we rush to the apparent. There's all these like right now, Donald, you could open your email and there's 50 things to do and you will, if you're like me, select one of these things and say, this is what I need to do with. We place an urgency upon what we see apparently in front of us. Well, the thing is, are any of those important and which one of those 50? Or maybe there's one that's hidden away. How do you find it? So we need a much more objective as opposed to emotional response. So this evaluation will go through. It's really just questions of yes, no, you know, truth or lie. Basically about 25 questions. And through that pinpoints the vital need of your business. It may not be what we see apparently in front of us, but. But what the business needs from us. And if we serve that, it strengthens the business in its entirety, then we find the next fix.

And I'm going to tell you from personal experience too, go take the quiz. It will help you get refocused on what you need to focus, what you need to kind of work on next. And I did the, I did the quiz and I started applying what it said. And I'm telling you I've seen some. I've seen some steady growth in my business during. Even during COVID Yeah.

Don't forget the author guy. I accept checks if you want.

I'm telling you. Or, Or I heard you are. You take beer. I heard too.

I drink beer. Yeah. Yeah. So beer? No, just actually just doing stuff like this.

I'm.

I'm being ungrateful. I appreciate you just spreading the word. That's really the big thing. I win.

Oh, well, you know, I'm a huge fan. I love your books and I read the, you know, pumpkin Plant. I've read. Actually. I've read, you know, probably first couple times now. I've read Fix fix this next. I've read Clockwork, so.

Wow. Wow. You're drenched in McAllow.

Get the surge still.

Oh, yeah, yeah, yeah.

I also read the toilet paper Entrepreneur too.

Yeah, we can do a race. You can see if you can read them fast enough and I can write them fast enough.

Okay. I read pretty fast, so you might have to get going. Yeah, I read pretty fast. I read like five books a month, so my gosh.

Okay, you win already.

Awesome. Mike, I want to say thanks for taking some time today to share your. Your insight with profit first for restaurants. I really think it's a game changer for restaurants out there. If you are struggling, do yourself a favor, grab a, you know, just go to his website, check it out. You know, if you buy the book, that's. That's great. If you don't, at least go and check out some of his resources, it will start moving you in the direction that you need to go. And the biggest thing you have to do if you want to change where you are now, you have to change your mindset and you have to change the actions you're taking.

That simple.

So, Mike, thanks again. Again. If you want to head over to his website, the link is here www.mikemcalowitz.com I'm not going to spell it out loud. I'll have Mike do that.

Yeah, it's a doozy. I'll tell you a shortcut though. If you're just listening to the audio, you can go to mikemotorbike.com Shocker. Shockers. No one can spell McAllowitz. I struggle at times. But Mike motorbike, which was my nickname in high school, ironically, mikemotorbike.com you go there, it'll afford you to the exact same site.

That's awesome. Yeah. So either Mike Michalowicz, if you're brave enough to attempt to. Mikemotorbike.com awesome. Thanks again, Mike. I appreciate you being on the show today and all the best to you and hope your family and you stay healthy and safe during all this troubled times.

Wishing you health and wealth too.

Awesome.