Erika Jones, CFO, CCTAProfit First Professionals · Certified Fractional CFO and Profit First Professional

What Is Profit First? 'Under The Covers' Ep #1 with Mike Michalowicz

7 Oct 2019 · 1 min

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1:17

In this brief interview segment, host Speaker A asks Mike Michalowicz to define the Profit First concept. Michalowicz clarifies that Profit First is not about greed but about changing the perception and management of profit. He contrasts traditional accounting, where profit is the bottom line and therefore treated as insignificant, with his approach that places profit at the top of the formula: Sales minus Profit equals Expenses. He explains the practical implementation: each time a sales deposit is received, a predetermined percentage is immediately allocated to profit, ensuring the business remains profitable. The discussion also touches on common misconceptions that the method prioritizes profit over people, emphasizing instead a behavioral shift in financial management.

Do you have a question? Yeah, yeah. Can you explain what is profit first?
So it's funny, I get this question relatively often that people don't understand profit first is. And their first impression when they see the book cover is like, oh, this guy is all about greed and it's profit over people. And that's not at all what it's about. It's about the perception of how profit's managed. In traditional thought, profit is the bottom line. It's the year end, but it's our behavior. When something comes last, we call it the bottom line. When something comes last, it means it's insignificant. Like you would never say, I'm going to put my health last or my family. Well, your family maybe, but I'm going to put my family last. You would never say that unless they are insignificant. So what we do with profit first is we put profit at the top of the formula. So the new formula is sales minus profit equals expenses. And how it works in practice is every time you have a deposit for sales, you immediately take a predetermined percentage, allocate it toward profit to ensure the profitability of your business. That's what profit first is. It's a behavioral flip on how we manage profitability.
Perfect. Easy peasy.
We nailed it. Welcome to under or Goodbye from under the Covers.
It.