Ryan DeissCo-Founder & CEO, The Scalable Company

Why you need to flip your accounting formula

23 Sept 2026 · 2 min

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1:37

In this video, Ryan Deiss explains how he applied Mike Michalowicz’s Profit First system to his own eight‑figure business and why the traditional accounting equation (Revenue – Expenses = Profit) is fundamentally flawed for entrepreneurs. He argues that profit should be decided first, turning the formula into Revenue – Profit = Expenses, and then allocating the remaining funds to operating costs. To enforce this, he sets up multiple dedicated bank accounts—operations, tax savings, future investments, and an owner distribution account that ensures the business owner is paid. He demonstrates a simple spreadsheet method: estimate average monthly revenue, earmark roughly 20% for profit, and run the business on the leftover amount, adjusting spending if the numbers don’t work rather than chasing more sales. This profit‑first approach simplifies hiring and purchasing decisions, making them contingent on whether they fit within the post‑profit budget.

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If you haven't had time to read Profit First, here's everything I learned from implementing it in my own 8-figure business. So Mike Michalowicz's whole argument is that the formula that every accountant taught you, which is revenue minus expenses equals profit, is wrong. It's backwards because if profit is whatever is left over, there's pretty much never going to be anything left over because an entrepreneur's ability to spend will always outpace their ability to earn. We're so confident it's all going to work out. So what you want to do and what this book talks about is just flip Flip it. Revenue minus profit is what equals expenses. In other words, decide profit first, and whatever's left is what you're allowed to spend. Then he has you enforce it with setting up separate bank accounts so that you can't cheat. And this is one of the few books that we actually implemented almost verbatim. Every company in our portfolio runs multiple bank accounts. We'll have one for operations, one for tax savings, one for future investments, and one that he doesn't cover in the book, a distribution account. An account where the money sits before you get it, because the whole point of owning a business is that the owners actually get paid. The accounts are nice, love the idea, but it's the formula itself that is the game changer. Profit stopped being something that we hoped for at the end of the year, and it became a decision that we made at the start of every month. So every, should we make this hire, should we buy this tool conversation just got a lot simpler. Does it fit inside what is left after profit? If not, it's a no. So open up a spreadsheet, put in your average monthly revenue, subtract 20% for profit, and make the rest of the business live on what is left. If the math doesn't work, fix the spending. Don't just try to make more sales to make more profit.