Profit First Interview with Mike Michalowicz

So a massive warm welcome to our guest today on the In Her Financial Shoes podcast. I am so excited, girls. We have Mike Michalowicz on the podcast today. Hi, Mike, how are you doing?

I'm doing well, Katherine. Thank you so much for having me and doing this. I know it's a little impromptu and last minute. I appreciate you accommodating our sides switch up. So thanks for having me.

No worries. Yeah, I actually just did a quick Facebook live in my group to explain that I was due to be interviewing the co founder of Profit first today. And because of time zone changes, we actually kind of forgot that 1 o' clock is was or 2 o' clock UK time is not the same as it is now because of the time changes. So Mike has literally just stepped in. And I'm so delighted to be talking to you today, Mike, because my audience know this from previous conversations that I've had on the podcast is that the book Profit first literally changed my life and I know that it's changed the lives of so many entrepreneurs. This is one of the reasons that you wrote this book was to create huge change and to help people out of kind of entrepreneurial ship poverty. So first of all, just wanted to thank you, Mike, for writing that book because it really seriously changed my the whole way that I managed my business finances.

Well, you're lighting me up. That is my dream. And actually it's funny that Eradicate entrepreneurial poverty. I'm devoted to that. It's on my wall right over there. Eradicate entrepreneurial poverty. I feel compelled to carry that message. It's a shame there's so many entrepreneurs. You know this, Kathryn. There's so many entrepreneurs who started a business with this grand vision of financial freedom and personal freedom. I can do what I want, when I want. I don't have to worry about bills. So we have this vision and then the reality of entrepreneurship is we work like mad dogs. We have no time for life. We have to work more and more and we're not making money. So this gap is what I call entrepreneurial poverty. And I feel extremely compelled to resolve it. I believe yourself, myself, all entrepreneurs, we have a big mission. Particularly now with this COVID pandemic. There is a global recession upon us. We are in economic turmoil and we're just in the beginning of this. In my opinion, who will see us through this, and it happens every single time is small business. We must be successful not just to serve ourselves and our family and our communities, but but to serve our collective globe. So I am rooting on entrepreneurs and will do everything I can to support entrepreneurship.

Yeah. It's so powerful what you just said there. Like a lot of the women that are in my audience, Mike, really struggle with charging their worth. And, you know, many of them will give away their time or their money free because of that lack of self worth. And I always say that, you know, if we undercharge for ourselves and we don't put profit first and profit at the heart of our business, we're not going to grow the economy. The economy is going to suffer as well as our own pockets.

Yeah. And we start stealing jobs. So let's talk about the downside. I get it. I get that the opponent to raising prices is in our mind, if I charge too much, people won't want to work with me. But we have to realize that if that's our belief, that means people see us only as the cheap provider. Not the good provider, not the valuable provider, but the cheap provider. And if we increase our price, if they're going to leave us, it's because they want the cheap solution. And who wants to be cheap? But to your point, there's something much bigger going on here is if I have to keep, If I feel compelled to keep my prices cheap, I have to do the work. I can't afford to hire the people. I have to grind it out even more, which means I'm actually stealing jobs from other people. There was a study conducted, a global study of entrepreneurship and. And 7% of the people on this planet will ever be entrepreneurs or business owners. 7%. We are the weirdo minority. But 93% of people are looking for good, reliable jobs where they can get consistently paid and do work that they enjoy doing. Our job is to build and provide jobs. Our job is to give jobs. And shame on us if we have to be the cheapo, the low price provider, because then we're stealing jobs from other people. And there's one last piece I want to share because you can already tell I'm riled up about this. When we set a price, I want everyone listening in right now to realize that is your biggest marketing message you have. Period. Hands down. I don't care if you have the market, wonderful Facebook ads and these, these other forms of advertising that gets noticed. What matters is the price. But because the second we see price, we determine value, it perceives value. For an example, if I put down a thing that looks like a diamond, I plop it on the table and say, hey, Catherine, that thing's worth about $5. I don't need to say anything else. Oh, that's a cheapo costume jewelry. It's trash. It doesn't matter if it gets lost. If I put the exact same piece down, the exact same thing and say, that's $50,000 now it's like, whoa. We'll take tweezers, we'll carefully put it into an envelope and put it into a safe quickly. The number one marketing message is your price. It sets the expectation for how the customer's gonna behave. If you increase prices, you increase perceived value by default. It's a necessity. Do it. Do it.

Oh, like, we could just finish the interview there, and that would just be like a golden nugget there. Mike, thank you so much for sharing that with us today. And I think that will really help a lot of our listeners who really struggle with pricing in their services. Mike, take us back a little before you became. I mean, I haven't read your latest release, your latest book, but what you were just talking about there really resonates with some of the work that's in your clockwork book about getting your business to operate so that you don't have to be working in your business all the time. And that really resonated with something you just said there. But take us back, Mike, to before you wrote Profit First. Share with us a little bit about your personal story.

Sure. Kind of like the inception, I guess, of how I became an author might be interesting. So I've been an entrepreneur ever since college or university. Ever since university, I've been an entrepreneur. So my entire adult life, I've been running businesses. By the way, I never aspired to be an entrepreneur. I didn't have a newspaper route as a kid. My family are not entrepreneurs. Um, but I decided to become one because I had to become one. I couldn't get a good job. Um, well, I'm happy it happened when I was 21 years old because I've been an entrepreneur ever since. I fell in love with the process. I've had the good fortune of building some companies in the technology space and then selling these companies. But my mindset became chock full of two dangerous elements. Arrogance. Thinking, oh, I know this thing now. Build a business and sell it, pump it and dump it. And also, it's chock full of just ignorance. So arrogance and ignorance is a deadly combination. I started a third business as an angel investor with my own money, with my own wealth I'd accumulated. I started making bets on different businesses. And my arrogance was like, well, since I'm here, these businesses will Be successful. I started 10 companies with partners over a six month period and all of them collapsed within that year. I was a train wreck and I don't know listening in if anyone's experienced this. It doesn't matter where your bank account is, but there's sometimes moments in life we see our bank account dwindling so quickly that we logically can see it fading, but emotionally don't accept it. We hope that one big customer will come. I'm like that one investor will come in and save my life. But didn't happen. I'll never forget the day. This is what the day became an author, effectively. It was February 14th, Valentine's Day, February 14th of 2008. I got a call from my accountant who said he'd finished doing the finances and the tax return plans for my business and told me that I should actually declare bankruptcy. He's like, you are in a bad way. You have two choices. Declare bankruptcy and see what you can do. Or he goes, liquidate your final assets, which was my house and a couple cars. Liquidate that and dig your way out and go get a job. I chose option 2 minus to get a job part. I decided I got to liquidate things. Well, I went home to my family that day and told them, we have no money left. And it's a shocker because I've been lying to my family by omission, by saying everything's great, you know, I got this, things are good when they were shit. And I came home and I'll never forget this, my wife and my three children were there. They had prepared a meal for us for Valentine's Day and they were saying at the table, I came home a half hour late, not because I was running late. I didn't know what to say to my family. I was sitting outside crying. And when I finally came in, the food was cold, I was sobbing, my face was red. My wife was like, did someone die? What's wrong? And that's when I told her, we're going to lose our house. We lost it 30 days later. We're going to lose our cars. I lost everything. I had tell my daughter she was nine years old at the time, that I couldn't afford to send her to horseback riding lessons. It was $20. And for a group session, you know, she did with like six or seven other kids. And I was broke. And as I said this, my daughter stood up and just ran. I thought she was running away, which honestly, Kathryn, that's what I wanted to do was just run away. But she was running to her bedroom to grab her piggy bank and she grabbed it and she came running back to me and she puts on the table and she goes, daddy, since you can't provide for our family anymore, I'll step up and do it. And actually, I'm getting emotional. I thought, sorry, I can't recall how many times now. And every time it triggers me because I'm so ashamed of my lack of understanding of entrepreneurship, the outside effects, entrepreneurial poverty. I'm successful, I'm amazing. The reality, no understanding this gap, this collapse I experienced. And I devoted myself to fix that, to eradicate entrepreneurial poverty. The last little kind of part of the story. It's not like a nice little bow tie on it. It wasn't like, the next morning I woke up and said, now I'm an author and I'm going to save the world. Next day I woke up and I started drinking. I drank more than I should. Not because I. Because I was medicating myself for another reason. And I was an insomniac and I socially distanced myself from people. Before, socially, distancing was a buzzword for the COVID pandemic. And it took me about two years of depression and slowly moving forward that I came to this awakening. I was writing a journal during that period, a guy's term for a diary, and writing down all the things I didn't understand about entrepreneurship. I still have it. I have a collection of things I need to fix for myself. So every book I've written, Profit First Too, is a solution for something I don't understand about entrepreneurship. Admittedly, I'm writing the books that serve myself, but I also hope it serves countless entrepreneurs in navigating through those challenges. That's how it came about.

Wow. Like, I literally was getting goosebumps on my arms. I have a nine year old son and my youngest is seven. And when he was born, he was born at five weeks old. When he was five years old with bacterial meningitis. And we nearly lost him. And that was my moment when I was like, there was so much jargon used in the medical profession, like septic. I didn't understand what it meant. And when I went back to work in the finance world, it was like, how many people don't understand money because they don't understand the jargon? And there's always like a pivotal moment, isn't there, in our life? And like, thank you so much for sharing that with us. I can only imagine what that must have been like.

Oh, devastating. And thank you for Sharing yours. And the thing is, everyone listening in right now, if they're watching live, if they're. There's a recording we've all had. Now, I understand to be trauma. You know, I thought trauma was physical violence or something worse like sexual abuse, but there's all these flavors of it, if you will. Yeah, I was, I was interviewing a psychologist. I'm just fascinated about how the human mind works. And she shared something fascinating. She goes, you know, I'll tell you how to find your life's purpose. She goes, it's either a big T, a little T, or the letter C. And I said, well, what's the big T? She goes, that's the big trauma when there's a moment in your life that is so visceral, so painful, that we make a commitment to ourselves to never allow that to happen again to us or others. That's the big T. Just the little T is the drip trauma. That's when you're picked on for something. Growing up as a child or your parents, you know, do a bad job parenting. And there's this nagging thing where it becomes this kind of overwhelming moment, but it results in that same thing. I will never allow this to happen to someone else, including myself. And the C is a childhood dream, this aspiration we had. One day when I grow up, I will. And that dream gets abandoned. Because then there's that day when you say, I will not let that dream pass. If we grasp the big T, little T, or the C, that becomes this mission. And honestly, I think when I'm out trying to teach, I'm really trying to learn. That's the honest truth. What I'm trying to give is actually what I need to get. And I think that's true for all of us.

And so where did you go from there? From that moment of going bankrupt and then writing? Profit first. What happened in between that?

Desperation. Desperation is a dangerous thing. Desperate people do desperate things. My desperation was I couldn't. Didn't have a house anymore. Well, thank God for our neighbors. They knew our situation and. And they were actually going to Europe to live, I think in the Netherlands for a job assignment for a period of time. And they were seeking to get a house sitter to maintain their property because they weren't going to sell it. They heard our situation, said, listen, just pay a rent that you can reasonably afford your house sitters now. They gave a shelter. That gave me time. I started to just dabble in different things, trying a little consulting, trying to writing some stuff. I remember actually at one point, my wife said, mike, this is not working. You have to get a job. You really have to get a job. Which to an entrepreneur, the words get a job is like, you might as well take a dagger and stab at my eye over and over. That would be less painful. But there was this burning desire, like, to become an author. It was building there. It was actually part of my childhood dream. I wanted to be of service in a big way, somehow, someday. I didn't have the words author, but it did something that was calling me. And then I just did it. I actually did a vision board. I believe in those. And I wrote down, if I didn't have the problems I have today, what achievements do I want for myself? And I made this board. And on there was my first book. And so I just started to do it. I started to write it. The first book came out was called the Toilet Paper Entrepreneur. It was this irreverent kind of approach to entrepreneurship. Very scrappy. But the book worked and required tons of hustle. I was now thrown into a new business. Selling books is like selling cereal. It's any other product. You can go to the local market, and there's a ridiculous amount of cereals available. How do you pick the one, and how do you market so that the customer picks you? Well, that's why I had to learn about books. It was a struggle, for sure, but I learned different approaches, and ultimately the book became popular in a cult classic type of way that a mainstream publisher said, we want to work with you going forward. And that's how I got in the door with a mainstream publisher. And then I started to write my other books. Today I have, I think, six books in circulation. I'm actually actively writing one that's going to be released in 2021. My ultimate goal is to write 25 books. It's all in that journal. I wrote it all down during that period of my life, the things I got to write. So I have a lot of work in front of me.

Wow, so this is just the start of your journey then?

Oh, yeah. We're just scratching the surface, you know, to me, it's kind of like music. My favorite band, admittedly, is Def Leppard. They're out of Sheffield. They, you know, they work really hard, just like every other band. And then you have a hit song. You know, my hit song is Profit first right Now. And what I learned from Def Leppard and all these other bands is once you have your hit, you better perform that a lot. Like, that's what the People want to hear. I don't want to hear the B side things. When I go to concert. I want to hear, you know, stuff from Pyromania or whatever. So I realized once I have that hit song, I have two responsibilities. A, deliver on that because that's what people want to hear and need. Secondly, I better write a bigger hit. So it's a responsibility to level up. And so every book I'm working on, I'm trying to deliver a concept that is of greater service and bigger service. I've written two, two books or three books now since Profit First. I can't even recall, but I think it's two books since Prophet first and now my third. And I think the concepts are life changing, but they're not the hit songs yet. So I'm going to keep on delivering profit first until people are tired of hearing that song. And hopefully I'll deliver some other hits in the meantime.

And for those people who haven't read Profit First, Mike, if you were going to summarize the four principles that you teach in Profit first, what are those four principles?

Yeah, so it starts off with understanding the essence of why most businesses aren't profitable. I thought there was something wrong with us, like the human mind. Because you think about it, you got into business, I presume, to be profitable, to live a lifestyle that you define as comfortable. And I did the same. And so do the vast majority of entrepreneurs. That's what financial freedom is, that we can live a lifestyle of comfort without worry. Financial worry. Well, I'm like, how come we. We all are almost always start a business for that reason, yet we never achieve it. And that's why I saw the foundational formula. The foundational formula is sales minus expenses equals profit. So, you know, your turnover minus your expense equals profit. And what that formula tells us is that profit comes last. And it's human nature. When something comes last, it means it's not important. So most of us don't look at profit until the end of the year when it doesn't happen. Like, oh my gosh, maybe next year. So what we need to do is make profit a habit. My say in the book is profit is not an event. Eventuality. Profit is not an event. It's a habit. So I flipped a formula. It's sales minus profit equals expenses. In practice, every time revenue comes into your firm, you immediately take a predetermined percentage of that money as profit and allocate it away. So the four principles are this. First of all, set up multiple accounts at your bank. Or one account acts as a depository account. Money flows in, but then we're going to carve up the money for its different responsibilities, profit being the primary responsibility, but you also have to take a salary different than profit. You have taxes. I've yet to visit any country on this planet that doesn't have a government with a long sticky hand that pulls money out. That's our obligation and responsibility. So we have to pay taxes. And the business, of course, needs operating expenses. So we set these multiple accounts. And it's like the envelope system, if you're familiar with that, you take when money comes in, you carve it up to its responsibilities and envelopes prior to spending the money. So then when you do spend money, you know what's available before you spend it for that purpose. The second account is sequencing. It's human nature that we need early rewards. We need to get the pat in the back to feel confident about something. A big mistake, for example, an exercise. Someone has an exercise for years and says, I'm get back to that gym New Year's Day. I'm going to go and walk that treadmill. You know what, I'm going to run a marathon. I'm going to do whatever distance a marathon is. And they injure themselves, they can't sustain it. And they say, clearly, I'm not made for fitness. The problem is we went too fast too soon, and instead of getting a reward, we got punished. The first day at the gym should simply be a stretch. Just stretch out. Let's see if we can feel a little better and build that momentum. Well, with profit first, what we do is we start with a low percentage of profit just to start stretching the business and start accumulating profit. It starts rewarding us for the first time ever, you know, accumulating cash, profit. We get excited, we feel good, we add more profit percentages over time. So the sequence of allocating profit first is important because it is a reward mechanism. And then growing those profits over time, that sequence of events builds that strength. Third principle is remove temptation. As we accumulate profits and other reserves like taxes, the that we're going to pay out in chunks to ourselves or to the government. If it sits in front of us, it becomes very tempting to borrow from it. Listen, I've been doing this, Kathryn, for 12 years now. I've had 47 consecutive quarters of profit distributions. But in the very beginning, when the bills were stacking up, I looked at my profit account and I looked at my operating expenses. I didn't have enough money in my operating Expenses. I said, I'll borrow from my profit account. And I unwound the entire system. Lesson is this. The OPEX account. If you don't have enough money in there, if you can't pay your bills, can't afford your bills, there's something fundamentally flawed. We got to cut costs. More importantly, amplify margin, like we said at the beginning of this. Raise your prices. Please raise prices and hide away that tempting profit. That's going to come out, but it's going to come out to you. Reserve those taxes. That's gonna come out, but it has to go to the government. You have to pay them. And then the final principle is to get into a rhythm. Doing things sporadically. Like, you know, you go to the gym for a couple days, you work out like an animal, and then you don't go for three months, and oh, my gosh, I haven't gone so long, we start up again. Drives, no results. It's that consistency over time and that persistency that drives results. So we set up a rhythm every two weeks, but sometimes we tweak it to weekly, sometimes less frequently. For a business, we set up a rhythm of accumulating money, allocating out spend within what's available, reserve profits and taxes, and repeat the process again on a periodic basis. Then part of this rhythm is every 90 days. That's what was called quarterly distributions. And we're doing this on the 27th today. And so the quarter just ended on September 31st. So 27 days ago, the quarter ended. That's when this money comes out. The money that's been accumulating the profit comes out as a reward to you. This is not your salary. You should be taking a salary, but this is a bonus on top of it. It's a thank you for running a business that's contributing to your society, your country, to our globe. It's a thank you for being an entrepreneur. And we repeat that cycle every 90 days. That is, you know, I don't know, seven, eight minutes there. I raced through something I usually teach in about one or two days. But that's the essence of profit first.

Yeah. And then a couple of things, actually, from my perspective, Mike. So when I first implemented this, I literally, I took the book on holiday and as you.

I love that. I love that. That's. That's an author's dream right there. Just so, you know, marked up like that.

This is having read it twice. I read it twice on one holiday and I was so excited to implement it. I literally sat on my sunbeds I had like my sun creams all over my notepads. And I sat there and I worked out all of my taps and my caps, all of which are in Mike's book. And the first thing I realized is that I was, I was actually. My expenses were around about where they should be. But even doing that, and I, you know, I teach this stuff. I teach personal business finance. But even though you're a financial professional, doesn't always mean you do it for yourself. Right? I think that's really important for the.

Cobbler'S kids, they call it.

Yeah, it's like the curse of knowledge. Yes, curse of knowledge. But I sat there and thought, okay, so my operating expenses account is about where it needs to be. But I actually plugged a few of the leaks that were there. But then I'm a big believer in actually bringing and bringing conscious awareness to our finances. So for me, I actually look at my money every single day, which I know sounds a bit excessive.

I love, I love it.

I love it every day. Like, I top up my tax pot. In the UK we have VAT to pay, so a proportion goes into my VAT pot. Now, I'm going to let you into a little secret, Mike. I don't move my Profit first plus account into a separate bank. And the reason I don't is because I spent years in debt. And so now I see money accumulating from a mindset perspective. It spurs me on to keep going with my money mindset. So I think actually that the principles that you talk about are so important because, you know, if you're an overspender, for example, then moving your profit account outside out of mind is just genius, pure genius.

So Profit first is a framework, meaning it's not something we have to adhere to 100%. And if you go off or you modify that, you failed. The goal is to have a framework that then works within our behavior. Profit first is a behavioral cash management system. So a couple of things you said resonated with me. You said you check your bank accounts daily. Well, I think that's awesome. And I would argue most entrepreneurs do that sometimes more than daily, maybe hourly. And the reason we do is we want to see how much money we have. Did money come in? What's my situation? Did money go out? Now, traditional accounting says never, never look at your bank account. It doesn't reflect your business. Read all those complex statements. But what we typically do, almost every entrepreneur, myself included, is we revert to the bank accounts. That's why Profit first exists at the bank Level, it's at the bank accounts because it intercepts our behavioral path. I'll give you an example. I've exercised sporadically my entire life, but the last five, maybe actually seven years now, I don't miss a day. I work out five days a week. Worked out this morning. I don't miss it. The change was understanding my own behavioral path, my pattern. What I notice is when I wake up in the morning, that's time. Best time for me to work out. I think it is for many people. What I was doing was I wake up, I go to the bathroom, I come out of the bathroom, I'd make some coffee. I'd read the paper a little bit. I'd say, oh, I really got to work out. And I'm like, oh, my gosh, I'm late for work. And I'd skip the workout. Well, going through that sequence of events, I would say I'd wake up, go into the bathroom. Oh, I go into the bathroom every single time. I will put my gym shoes on the top of the loo, on top of the loop. So that's a mirror glass. I could fit that in somehow. And it intercepts my behavioral path. The only way I can use that toilet is if I pick up the shoes. Now I have the shoes in my hand. I need to put them on my feet, or I don't need to, but I feel compelled to put on my feet. And I started this positive momentum. It intercepts my behavioral path. That little change changed everything with profit. First, we set this up at the bank so that when you log into the bank, you see what money is allocated to what purpose. The other thing you said that resonated with me is you actually like seeing the money accumulate right there at the bank because you have clearly a very visceral moment with debt and your experience around that, that the accumulation of money fuels you. There is a financial expert here in the US who's very popular, named Susie Orman. I don't know if she broadcasts out in Europe, but what was fascinating, she's. And I'm not even necessarily a fan of hers, I don't watch her television program. But I did see this one thing she said, and it was a eye opener. She says, I can make you rich today. She was saying to this audience, she is the moment you get more happiness out of saving than spending, you are a rich person. It's like, that's it. That's the formula. The moment you get more joy out of something, that's what you should be doing. The fact that you're getting joy out of the accumulation of money. And you can see, see it and you get joy from that. It will continue that momentum for many entrepreneurs, myself included, as money piles up, I get the joy out of using that money, spending on something expensive. Therefore, I have to hide it for myself. Then as the money accumulates on the side and I don't see it, I work within the confines of what's available. What gives me joy now is finding how do I get results I want with scant money, with way less. So I started becoming very innovative. So there is no wrong answer here in regards to the system. There's a right answer in regards to your behavior. What gives you.

Yeah, I think as well what you were just saying there, Mike, about, like, focusing on profit. So, you know, the typical traditional accounting method of, you know, sales minus your expenses equals profit. That's just an accounting method. And when we flip that on its head like you do in profit, first it's sales minus profit equals expenses. For me, this is all about the behavioral side of money. How we manage money is depending on our relationship with money. And one of the things that I often find with people that I work, and I've done a lot of study around this in financial psychology as well, is that often most people's values are inherited values. And they often are values that are driven away from pain rather than towards pleasure. And in the scenario you talk about in your book of the toothbrush, if you're brushing your teeth every single day, which hopefully everybody's doing, it is anchoring that new habits into something you're already doing. Like you say, put your gym trainers on the toilet so that you're, you know, when you're going to go to the toilet in the morning, you're setting yourself up for success, and you're setting yourself up for success to work towards something that's pleasurable rather than something that's kind of cemented in pain and pain, away from debt or away from something, or away from being bankrupt or away from not, not managing the finances, but how you'd like to. And in your experience, Mike, how often do you think entrepreneurs focus on money versus their mission and their purpose?

So ironically, while the intent often is coupled together, I want to serve the world and make money doing it. It gets decoupled very quickly. And there is a fear of the money, the numbers. I think the vast majority of entrepreneurs say, I'm bad at math. I don't look at the numbers. And there's this perverted expectation that one day, if I hustle and grind long enough that a tranche of money will just appear in my bank account that one day this switch will magically flip and all this money will appear. And we buy into this and it's totally false. Like I said, money, profit specifically is not an event, it's a habit. Profit is an accumulation of small little wins that happen every day, every hour, not that just magically fall into your lap. So we need to put the habit in place today. What's interesting too, and I tell people this, with profit first, you can start being more profitable permanently and effectively, immediately if you do two small steps. One, go to your local bank today and set up a savings account or checking account and call profit. Here in the US it takes about 30 minutes, 60 minutes. It's an investment of time, but it is a game changing investment. It's worth the 60 minutes. The second step is any money comes in, take a small percentage. I even suggest starting with 1% of your cash flow into that profit account because the impact is inconsequential. If £1,000 come into your business today, £10 is like nothing. That's 1%. Put that into profit account. Because if you can run your business off a thousand pounds, you can run your business off nine hundred ninety pounds. It makes no difference. But what makes a massive difference is you start seeing a cash accumulation in that profit account and then we start building that muscle. Now we're stretching at the gym and that becomes walking and ultimately running, you know, a profit marathon. That's how we get started. And it really is that simple. I get a lot of resistance to people. You know, I've been speaking all over the globe and it's the ultimate privilege of a lifetime. But people come up and say, listen, I'm skeptical. Like this is a shell game. Money's money. I'm just moving in round, in pieces. This isn't going to work. And I hear them because like, that's what I thought. This sounds like a stupid shell game. A percentage is a percentage. It doesn't matter where it's going. But I found out it does because this is a behavioral aspect. It's to your point. It's the human mind. We like to get little reward bursts dopamine. That's why we like to surf Instagram and do all those things because of the little dopamine hits. And the second thing is we want to avoid pain. So if we line something that gives us pleasure and avoids pain, meaning no money left, the end of the year, don't know how to Pay taxes. If we avoid that and we have this accumulating profit, it will work into perpetuity. I'm proud to say we have well over 350,000 companies globally doing profit first. And the feedback's consistent. It's a consistent drip of pay taxes. If we avoid that and we have this accumulating profit, it will work into perpetuity. I'm proud to say we have well over 350,000 companies globally doing profit first. And the feedback's consistent. It's a consistent drip of great results on building profitability and paid in avoidance. I don't have to worry about taxes anymore. My taxes are paid. My business is running efficiently and effectively. Profit first is not a shell game. It's a behavioral system.

And are there any typical mistakes that people make when they try and implement profit first?

Oh, yeah. Yeah. So the most common mistake is I'm not going to do this in my bank. I'm going to do it in a spreadsheet. And I get the idea the reason it doesn't work is because that does not intercept the behavioral path. That's not the gym trainees on the toilet seat, right? That is. That is something you don't look at. And I explained to people, you don't even have to do the spreadsheet if that's the way you want to go. If you have an accounting system like Xero or whatever, you use QuickBooks, you have an accounting system that is a glorified spreadsheet, all your numbers already carved up. It's called the general ledger. And if that's not serving you, a spreadsheet won't serve you either. We must intercept the behavioral path. The other common mistake I see is people going in too fast, too soon. They hear the profit first system and they say, I want to have a 50% profit. I've never had profit before. I want big numbers. I want to pay myself this massive salary. And they start off that way. But now you're trying to run a marathon where you haven't exercised for the last 20 years. You're going to tear your legs off your body. It's too dangerous. So you have to start slow and let it grow. If you avoid those two mistakes, generally we see significant success from the businesses that implement it. So much so that they actually are not just more profitable than their contemporaries, they actually grow faster than their contemporaries because they're focused on the efficiencies and what works within their business as opposed to doing potshots and just throwing money at different, you know, trendy ideas of the day.

Great. So first step then is, I would say read the profit first book. Second step then is just to start, go to your bank. I mean in the UK we have providers like Starlin bank and Monzo where you can literally open an account in about probably about 20 seconds.

No, really?

Yeah, it's literally like as long as you've got.

You guys are always so much more advanced than us. Please send your technology our way. I love it.

Yeah, it's super quick. And actually, you know, the likes of Starling and Monzo, they are perfectly built for this type of model because you, you have one bank provider. So your main bank account is your operating expense account. And then you just set up what they call these gold pots and you can put pictures behind them, you know, in your VAT pot or your tax pot you could have a picture of a tax man, you know, something like that profit pot. You could have a nice vision board behind it potentially to, you know, inspire you to pay your profit. So it's beautifully equipped for this. And so then to work out your. Tell us a little bit, Mike, about the TAPS and the caps. How does, how do people work out their TAPS and caps?

So yes, this is a little more of an advanced concept. In the book, TAPS is an acronym. It stands for Target Allocation percentages and CAPS stands for Current allocation Percentages. Profit first is a percentage based system. So we start with looking at where your business is today and then we compare it to taps. What do we want to target now? In the book I give examples based upon different revenue ranges of what might be really effective taps. This was based upon a survey I did of about a thousand companies. So you set the taps, but that's not where you start, that's where you target. That's the marathon we're going to run. Then we rewind back to today and say, where are you currently? What's the physical health? Are you having any profit? Do you have zero? Do you have some? And that becomes our caps, our current location percentages. Then we develop a rollout strategy. Every quarter, every 90 days or so we, we make adjustments, we enhance the profit somewhat, we improve your compensation, reserve more for taxes, we put downward pressure on the operating expenses of the business. And then we let that settle in for 90 days to see how we're doing. And we reiterate that process again and repeat it again and again until we hit the TAPS for our business.

Amazing. So a good place to start that would just be to actually just understand your numbers and understand what are your Expenses, what are your sales? And then you can start to work out roughly, well, what percentage of your sales are going out for expenses? What percentage of your sales are you putting aside for taxes and VAT and profits?

Yeah. Look at your historical performance. And the funny thing is, you know, we may not be thinking these terms of target allocation percentages and profit first percentages and all that stuff, but you are doing it in your business. We can extrapolate from your numbers very quickly what percentage of your revenue is translating to profit, translating to owners compensation and so forth. So everyone has a starting point. We just evaluate your numbers. Our I would work with a financial professional like yourself, evaluate your numbers, understand your current position, then determine where you want to be and intend to be, and then step in that direction.

Yeah. Amazing. Amazing. And any final words of wisdom, Mike, under the current situation? Some of the questions that came in from my audience, actually, just to finish off, obviously, we are going through a huge global pandemic right now, and it is impacting on people's businesses in lots of different ways, some more positively than others.

Sure.

Do you have any?

I do. I do. I just stepped on my soapbox. I don't know if you saw me do that, but I'm on my soapbox. I want everyone listening in right now. You know, listen, listening closely. Actually get real close to the camera. You just look at me. Here's the deal. You can do it, too, Kathryn. Here is the deal. The clients that you have, your clients want you to be wildly profitable. Just now. Let that one sink in. Your clients want you to be wildly profitable. They will never say, hey, could you charge me more for what you're doing? Or could you rip me off a little bit? Of course they won't say that. But here's what they will say. I want your full, undivided attention. I want the best of your services and products. I don't want you worrying about trying to land a client. I want you worrying about serving me. And the only way you can serve your clients, exceptionally, the only way you can be focused on them is, is by not worrying about money. Because if you're worried about money, you're worried about getting that next client in the door. You're giving some attention to your current client while trying to get another one. They're getting half of you, if they're lucky. So your clients will not say the words charge me more, but they want you to. They won't say, could you be more profitable, but they want you to, because that's the only way you can Give the best of yourself to your clients. You have a responsibility to be profitable. That's what I want you to know.

Wow. And that was just beautiful. And my strap line of our podcast is small steps, big wins. It's not about the money. And that's exactly what you just shared with us, Mike. So thank you so, so much. I know I could speak to you all day and I really appreciate your time today. If anybody wants to, obviously your books are on Amazon, Mike, but if anyone wants to check out any of your free resources that are available to help people get stuff started with profit first, where would they be able to go?

Oh, you can check. If you want to learn more about profit first, I encourage you go to profitfirstbook.com that's probably the best spot to get started on this book. There's resources there to download and get you started. And of course, access to the book and some free chapters too.

Great. And you have a podcast too, haven't you?

I do. It's called Mike up in your business. It's a brand new release. And it's just a different spin on podcasts, at least from my perspective. They're really deep dives. They're not how to necessarily, but you'll find maybe some how to's in it. They're stories, but there are stories that I think are atypical in the entrepreneurial space. We just booked someone to do biohacking. We talked about racial injustice for entrepreneurs. Topics that don't get addressed as much, I think, as they should.

Great. And I believe I'm going to be coming on your podcast very soon as well. So I'm really looking forward to having a chat with you about my money story.

I look forward to it.

Thank you so much for your time, Mike. It's been an absolute pleasure to have you on the podcast today. Have a awesome rest of the afternoon.

You too, Katherine. Thank you for having me.

Thanks, Mike.