Profit First Keynote by Mike Michalowicz (Full Presentation): How To Do It The Right Way
Mike Michalowicz argues that 83% of small businesses operate cash-flow negative because they treat profit as leftover money. His Profit First system flips this: set aside a profit percentage first, then pay expenses from what remains. He walks through the five-account setup and explains how the Savannah Bananas used it to turn around their finances.
Chapters
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 Small Business Administration in conjunction with a major bank, and they identified that of the 32 million small 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 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 to 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 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 was looking into this concept of being lied to by someone who loves us because they think it's in our best interest. 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 locked, you know, 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 I 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 five, maybe six years old, I was losing my first tooth. My first baby tooth was going away. I get 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. 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, oh, 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 those 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 your 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. 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 experience is 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 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. I'm a former msp. I had a chance to meet some of you a couple years ago when I was out here. This was before we were called MSPs, before we were called IT providers. This is back to when we Were called varsity. 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 mows. Do you remember that? A multi access unit. Yeah. Okay, okay, okay. I'm about to say you're 70 years old, sir. All right, so we were installing mouse. 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 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 five years of running it, we had achieved a million dollars in revenue. Let me take it back. We achieved the entrepreneur's definition of a million dollars in revenue. I was doing about 400,000, but just rounding it up like entrepreneurs do. Yeah, we're about a million dollars. Said 400,000. I called my account after five years of not being profitable, and he said, mike, I have great news for you. I know this is your fifth year in business. We just ran the profit and loss statement and you're profitable. 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. 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 was up with this? 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 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 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. There's one of the fellas. I walk in there and there'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 5:00am Club. And I looked, it was 559. 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 manana 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. I'm 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 401k? 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. There's your gross pay. You then subtract your Savings goes into 401k 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 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 is a saying that small business is the backbone of the economy. And 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, Almec, 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 FU 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 fu. There's an fu. Here's an F me there and there's something. 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, I we can chit chat all day about it. I will tell you this. They were guilty. They were guilty and I was their defense. They were guilty. In that business, the right opportunities, the right positioning. I grew it and I was able to sell it 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 FU money. And then I said, okay, I got this figured out. This is a pump and dump strategy. You got to grow fast. I did it within three 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 new cars. So I bought a Land Rover, BMW and a Dodge Viper all within four 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 heard of it, but it's, 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 is 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, started 10 new companies all Within a year, all of them were underwater. Within two 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. I had become a dick. I didn't even know it. I thought I was like, I'm going to show off my success. Two years. I blew it all. And in retrospect, it was probably the most important moment in 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 three 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 these great things, but prepare. He goes, we've just run the numbers. 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 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. 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, don't pay taxes. I'm like, what happens if you do that? He goes, you go to jail. I'm like, what? What the f. Like, this is the darkest part of my life. And he's like, joking, we're gonna go 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. Thirty 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 was sobbing and I'm like, 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 children, 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, 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 Frankensteined my way to the door. And my wife opened it and she saw me sobbing. She goes, what happened? 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 your. 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 what 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 just 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 nine years old at the time, she said to me, she says, daddy, can I still go to horseback riding lessons? Her favorite activity was to go to horseback riding lessons. It cost 20 bucks. It was a group of, like six kids or seven kids. For a half hour, they would practice, and she loved it. In fact, she had a piggy bank in a 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 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, and 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, you know, a financial challenge. I know people in here have experienced stuff that is a thousand 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 just 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 says, I know you can't provide for us anymore, but I'll start doing it. Yeah, if you freaking cry, I'm a co. I'm a co. No, don't hold it in, because I'm a CO crier. 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 two 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 runner. 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 friends, the Smiths saved us. They were going away on a business trip, a sabatical for two 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. 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. So I'll give you the fill in the blanks. We answered number one already. It says society is addicted to axioms, establish truths or beliefs. That's what an axiom is. So number one 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. Answer number two. Right now we've been told that profit is an event, as in a eventuality. Profit is not an event, Profit is a habit. We're going to bake it into every single transaction of your business. So number two is profit is not an event. Profit's a habit. So how do we do this? Well, the first thing we're going to do is we're going to 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 entree 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 up 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 containers 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 at all? That's human nature. She said, reduce the size of the containers. Let me ask a quick question. Script. 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, the food consumption is redonkulous. 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 two 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, and they're just disgusting. And they come to the kitchen, they don't speak English, they're 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 nod in your head. You, you live this. They fill up the ball. It's heaving over. There's, 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 consumer consumption, reduce the size of the container. All of a sudden I got real clumsy. 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, creme brulee things. I got slightly smaller bowls. Then next morning, the ass crack at 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 small portions and don't even notice it's a smaller bowl. Over six months I did about four times. I reduced the bowls to half the size. And those goons never noticed. Never. Same stuff. A box of Cheerios lasted like three days, which if you've teenaged 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 of your bills or all your bills from that one account, raise your hand. Next night. 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 going to 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 going to do with profitability. So you have a great starting point. 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, you'll know your business stands. Who follows the shortcut that I follow and checks your 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? Raising nice and high. Okay, great, great. Anyone? Some weakers 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 like you were doing this move. Yeah, I got you. I gotcha. 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 five accounts for your business at your bank. The first account is 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, what, five months ago already? I mean, it seems like it was yesterday. Four months ago. Thanksgiving, we celebrated at our house, and it was three months ago. But whatever. We celebrated our house, and we had about 20 guests over, family and some friends. 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 going to do is mice and come into the income account, and then we're going to 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 stock here. I own some stock in Ford. Not stock tip, by the way. Yeah, oh, buy Ford. This guy's. No, 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 my $13.23. 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 forward. Go. You don't return the money. You took risk for investing. I want the value to go up, but the risk is 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. 17% of the human population will ever attempt starting to a new business or running a new business. 17%. Only 20% of that 17 are successful in sustaining that for over five years. That means 3% of the population runs a business successfully. 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 start a business, I'm going to 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 replaced 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 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? A 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. 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 a 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? It 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, you might just wave your hand. Aaron, Aaron. Aaron is a certified profit first professional at the organization. If you have any questions, he's the guy to go to. He works with MSPs ensuring the systems deploy properly. And specifically, he can help you with this tax question. How do you have the business pay your taxes? Even if you're in a W2 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 kind of an idea of what a business could operate on. If your business does, we'll say, and you can actually use. On the back of your worksheet is a chart, and the top left is then called a taps chart. We're just doing the basics of Profit first. So we don't have time to dig into it. 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 going to call that income. That puts you in column D in that chart in the top left. What we do is allocate 10% of that money to profit. The next column is 10% to owners, comp 15 to tax, 65% to the operation of the business. Now these numbers are based on research that our company, our organization did. We initiated the research with about a thousand companies. Many MSPs were involved. This is what the fiscally elite do. So a fiscally elite MSP, that's a $3 million in revenue at the end of the year. There is a $300,000 bonus check waiting for you. It's a whomping amount of money. You're also paying yourself a salary that you probably were thinking is right for what we'd have to pay someone if they replaced you. 300,000 tax. I'll tell you, if you're getting 300,000 bonus and you're getting 300,000 here, you're going to get a big tax bill. Bill. 450k is going to 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 going to keep on saying number 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, but 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. Yeah, yeah. If you laughed, it's a little bit of an inside pain because you're like, I, I'm saying you can do these numbers. A 3 million dollar company can run off 1.9 million or whatever it is and, 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, may transform how you manage many resources. Before I tell you what that is, I do want to answer number three, which is these five accounts. Income, profit, owner, comp tax, opex. Hopefully you can see them up here on the board. We also answered number four. So number three was income, profit, owner, comp tax and opex. Number four is the income account, acts as a serving tray, right? Cash, turkey. So for number four, the first blank is serving tray. You only deposit income into it and then act, allocate. That's the carving of the turkey money to the other accounts. So number four 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 belief, 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's a theorist, and this is the answer to number five or. Yeah, number five. There's a theorist named Parkinson. So we're gonna. The blank is Parkinson's law. But there was this theorist, his name is Northcote Parkinson, in the 1950s, is 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 may do 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 because it's my favorite. It's going to happen tonight to everyone in this room. And it's going to happen when you get ready to brush your teeth. I call it the toothpaste experience. And this is what's going to happen tonight. You walk into your bathroom, I'm staying upstairs and I walked into my room last night. And there's one or 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 on and you squeeze 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, 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. Brushed 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 an 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 McCallow is what a stud. He was awesome. 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. And when you start the century 20th twist and turn, you twist the tube. You're like, come on out, you son of a bitch. You're doing always the 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 mit or deny. So you squeeze, you turn, it's not coming out. Then 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 right? 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 out, down. You're, come on, you dirty good friend. You're pushing and pushing. Of course, he 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? Good for nothing, dirty son of a brute. 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 from 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, you. 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 have the definition, the human definition, the walking definition of Parkinson's law. Because Parkinson's states are 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 based. We were 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 five was Parkinson's law. The next thing I want to share is the sequence of how things operate. So the sequence, that's answer number six, 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. Vegetable 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 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 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 my intra profit, that's a reward. Then we allocate money toward owner's comp, that's also an R in a circle there, which is also reward. We're paying you a salary. Next thing is we allocate money toward taxes in this sequence. And that's not a reward, by the way. It's, we'll say it's a P. It protects you from, 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 the 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 we're going to work with. So principle number two 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 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 three months ago. He's like, oh, in, in, 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 the Spartan race. Never heard of it. Never knew, oh, you know, never knew this thing. So I was like, oh, three mile run or something. Yeah, little race, fine. So I said, okay, no problem. Then googled it. Oh, it's a three mile run while you get electrocuted, dunked in mud and beaten by Spartans apparently. I'm like, what? What the hell I just signed 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 diet. You got to get lean. So he goes, tell me about your, 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. Because I know how that game works. It's willpower. You say you're not gonna do something, but we cave in. Willpower is like a muscle of 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 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 and you, 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, 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 just became a shell game very quickly. So we need to remove temptation. Here's how you do it. Whatever bank you work with today, 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's the only bank in the world as profers built in. And it's no cost banking. It's a real easy domain to remember. It's bank like mike.com very promotional, but it's bank like mike.com if you want to find an extraordinary bank for this and it is legit, the bank that I use for profit for 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 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 a entrepreneur I met, this is about eight years ago now. It's ironically, he just texted me this morning. He wants to chitchat. His name's 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 eight years ago. He came up afterwards and said, I'm going to do your system. I said, great, 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. I want to know about that business. So he said, I'm taking me 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 the system. He's like, yeah, because I'm desperate. I'm desperate. What he knew was he set this up and he said if he starts allocating money, 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 three hour drive for him. He found a bank there, Small little bank walks in and they welcome, they say, welcome to, you know, 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 three 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 my stealing from my business and not figuring out how to make it healthy the way it should be? By the way, 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 going to store money. Your bank, there's another one. Apparently they hit because the store manager came running out like, oh, my gosh. Welcome to the most convenient bank in America where we love customers who like to store money with us. So use that. Our own office. 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 share with our employees too. When we do that distribution, she enters the username and 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. It's like, three, two, one, release systems 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. May reimburse you quarterly. We're going to hide it away the exact same way. So number three is to remove temptation. In fact, if we look at our little worksheet here, number seven says if something's not accessible, we don't use it. So the word's accessible. The fourth and final principle. 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 three 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 five meals a day. There's also concepts around fasting now, but she was talking about these five meals a day. And she goes that, that brings about a norm, 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, a 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 1025 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. Day's the 15th. These are the days of the month or week the month. The next trigger day. Saving the 15th would be the 25th. Then the next trigger day is the 10th, 25th. And this chart just continues on into perpetuity. 1025, 1025, 1025. 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. Ownership 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 is allocated out. And it can look something like this, you know, because money changes over time. Yeah, exactly. This 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 going to pick a random number. We'll say it's $10,000 every two 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 account 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. 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 is right. Fix this. What this is, is the most simplified version of a cash flow statement. A cash flow statement, it's intentions, core intentions, 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? 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 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. Distribution. I started this process for myself over 15 years ago. I've had it's like 57 consecutive quarters of profit distributions. 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. We're going to allocate the money out to the shareholders. A reminder, when profit gets distributed, it only goes to the shareholders of business. And or if you want shares or 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 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 going to do on that 90th day is we're going to 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. 2500 stays within the account. Now let's say next quarter you have 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 going to be. Oh, now the math gets hard for me. 300, 3753, 750 stays. And then next quarter maybe you have 5,000 again. Maybe you have a flat business in profit. But I bet you'll profit will be grow, which accumulates to 8,750. You do the next distribution, it's going to be four, 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 5000, 5000, 5000 in contributions has a growing profit distribution. It's a mathematical anomaly. It will 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 profitability grows 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 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 getting out there. If you've not heard of the Savannah Bananas baseball team, my God, Google these clowns. They are incredible. Seven years ago, right when they're starting, 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, $3,000. To operate a game of that type, it usually costs you about 5 to $6,000. So the traditional owner loses about 2,000 to $3,000 per game. But 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 prop first. Him and his wife. From day one, they bought this baseball team. They ran the numbers. The $3000 came in. They did the allocations. They had $1500 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 got to cut some costs. We can't have any kind of, you know, people dressing, costume and this, the mascot running around, can't afford it. Can't have a scoreboard to maintain a scoreboard. It's too expensive in the electrical cost. So he's like, how do you run a baseball team with no scoreboard, 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, get the audience involved. He said, what if. What if the audience became our cheer squad? That's when they started the Grandma Bananas. The rule was you had to be 80 years or older. True teeth were optional. And you're on the grandma squad. And the audience lost their mind. Fast forward. Within one year, they sold out every game. Their stadium seats 5,000 people. 5,000 people. 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, 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 from 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 our society is amazing. So check them out. That's how you allocate profit. 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 six years ago, seven years ago, on Profit First. Big audiences, thousand, maybe it's even more than that, but say a thousand people in the room. I present on Profit first, asking the same questions you did. I asked you, do you check your bank accounts weekly? Do you have a prior checking account? All the same answers. I'll tell you, a 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 in profit first. We spent 75 minutes on the full. Basics are three 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 I'm going to do this, and I need this. My business is struggling. I don't have to change a thing about myself. I'm going to 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. Came back one year later, same group, same. I started off by saying, hey, good to see you again. Who saw me last year? Of course, all the hands went up because of the same group. I then said, you said you were struggling. You were surviving check by check. I taught you the system. You don't have to 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. And like, what the hell's going on here? And then I went beat face. 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 wait for you. What you're not doing. What's wrong with you? Copenhagen, which, by the way, Speaking tip number two, don't yell 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 going to 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 going to 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 eight was Peaks and Valleys. Number eight was Peaks and Valleys. Number nine is profit is used to celebrate. Plow back, Reinvest is the first three. Celebrate, plow back, reinvest. The next three is the money into you. 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 three are innovation, efficiency, frugality. By the way, I know I spoke quickly and maybe you missed some of the answers here. The answer is already on the worksheet. The very bottom. I, I don't know if you saw that. Yeah, you're. You're like, I didn't have to be here for this stupid presentation. No, you, 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 were looking to get cardiovascularly fit. The standard regimen, if you want to be cardiovascular fit, is to run five miles three days a week at a ten 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 five miles three 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. One guy's like, ted Lasso changed my life. You know, they're like, great. We have another question. Do you, do you sit on the couch when you watch television and the group's like, yeah, yeah, I do sit on the couch. 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. Two weeks of this experiment, they come back. The first group that was running five miles three days a week, that a hundred 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, these 10 people, you're the last one standing. Represent the group. Kick them out the door. Go, go, go. Five miles, three days a week. This group had 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 two weeks, whenever you're watching television, lower the bar. They're already standing. Marching. Sure. After one month, this group was not able to sustain it. And my tip is, if you are not already cardiovascular fit, don't try running five miles three days a week at a ten minute clip or faster. You may be the next heart attack. Heart attack victim. This group had a 98% success rate. After a month, 98% of people were doing this, which, which does beg the question there, there's two 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, I don't know. But the experiment continued. The research for this group the next two 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 six months, but for six months every over 50% of the group was running five miles three days a week at a 10 minute clip. The majority succeeded. Took time but lowing 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 profit 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 your existing bank and set one account. Ignore all these. Step one, account, checking your savings account, I don't care whatever it is, and call it profit. That's the first step. Step one, account called profit. Here's step two. 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 bucks, that's 1%. And 900. Yeah, 909. Yeah. 990 are left to operate your business and $10 is in profit. If you can run your business off a thousand dollars, 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 getting this year, and I think we will. And we can do it. If another couple hundred folks join us doing this, I would say most of them, almost all of them, started off very slow. 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 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. Guh.
