Conversation with Mike Michalowicz
If you want to create a thriving business, you will need to understand your finances!
That can feel overwhelming, but using the Profit First method really helps this! If you’ve listened to me pretty much anywhere, I’ve likely encouraged you to buy the Profit First book.
Profit First literally changed the way I look at finances in all aspects of life and business and it’s one of those things that I can’t stop talking about.
I’m incredibly honored to have had the opportunity to chat with Mike Michalowicz, the author of Profit First. Mike Michalowicz is an entrepreneur who has founded and sold 2 multi-million dollar companies. He has devoted his life to the research and delivery of impactful entrepreneurial strategies and he’s shared some of these strategies in his books. The Toilet Paper Entrepreneur, The Pumpkin Plan, Clockwork and Fix This Next are just a few of his books but the one that we’re diving into today is his book Profit First.
Profit First is a method to use with your business finances (and your life, really) that allows you financial freedom. It’s the method that changed the way I look at finances. I went into detail about the Profit First method in episode #73 if you want to check it out!
In today's conversation, Mike and I talk about money mindset as well as practical applications for his method as a yoga teacher. You can’t build the thriving business of your dreams if it’s not stable financially, so this is a critical piece of the puzzle.
Let’s dive into the conversation with Mike!
Managing your finances can be fun with the Profit First method
You are doing this on your own! It's a whole new mentality you have to step in. And finance isn't necessarily fun for many entrepreneurs.
But I work with a lot of new entrepreneurs who have implemented the Profit First method and they actually love it! I have heard students say that it makes them feel like they are in control of their business. It gives them clarity and direction. It changes their mindset completely.
A few of my students have actually reached four-figure profit distributions. For a clients to say "I just gave myself a bonus of a thousand dollars - that's huge!
**This was also a podcast episode (episode #100). Use the player below if you'd prefer to listen to this message.
Your clients want you to be profitable
"Profitability brings about stability, and stability brings about the best of ourselves. That's why our clients want us to be profitable." - Mike Michalowicz
Your students want to be cared for. They want to be treated like they are everything to you because yoga is important to them! And the only way we can give students our best attention is if we're profitable.
If you are always worrying about how you are going to support your life, and you're constantly thinking you might need to add another class, introduce a new course, or do something else new to bring in money, then that keeps you from being present in the moment with your students. You can't be all there in the moment.
"I truly believe you have the responsibility to be profitable, and you should be very proud of that. When your clients know you're not worried about money, you're worried about them - that's when they will be clients forever." - MIke Michalowicz
How you’re rewarded through the Profit First method
Let's talk a bit about profit distribution and how it serves as a reward!
The idea of profit is to reward what's called the shareholder. And you as the owner of a small business, you are a shareholder in your business entity!
(If this all sounds like greek, remember that you can head on over to episode 73 to learn about the basic framework of Profit First!)
By starting a business, you have taken on risk and you are contributing to our society.
Not only are you serving your clients, but you might have vendors, you get supplies, mats, and maybe you rent studio space. All of that is contributing to our economy! And for doing that, you need to be rewarded. There needs to be a thank you. That is what the profit distribution is.
What should you do with your profit distribution?
You can use profit in any of the following ways:
To pay off personal debt
To put toward your future
To do something FUN!
Sure, you may need to pay off debt, but Mike encourages you to use at least a small percentage to do something fun for YOU! That might be getting a pedicure, a new book, or meeting friends for lunch. As humans, we need that dopamine release. We want to reduce pain and increase pleasure. There is nothing more powerful than saying "my business paid for this."
Profit distributions are set to be every 90 days for a reason. It serves as a behavioral mechanism. If we give ourself a profit or reward every week or two, it becomes routine and expected. But every 90 days is a long enough increment that the anticipation starts to build, so it keeps the momentum going of anticipating the reward of profit. It's psychology!
Once your business grows and you hire people to work with you, you can share profit with your employees, too! Your team can rally around this method. It leads to more motivation. "I'd rather sleep in a Motel 8 and celebrate with everyone than have my team be unmotivated. By sharing a profit, my entire team has focused on the profitability of the organization and the entire profitability has improved that much more. It also helps the business fiscally by sharing with everyone. And it improves their motivation too, of course!" - MIke Michalowicz
Why to use all the bank accounts in the profit first method
I hear all the time that the multiple bank accounts are overwhelming. In that case, start small! Start with just a couple of accounts and see how it serves you. Then add on.
This is what I did. I started with just two bank accounts and then I grew and grew. And now I love having all of the bank accounts!
"Start slow and let it grow." - MIke Michalowicz
There's a psychological concept called "behavior intercept" and why our multiple accounts are necessary has everything do with this.
Sneakers on a toilet illustration:
For example, say you've been wanting to start exercising on a regular basis. In order to consistently follow through, you have to take an honest look at your patterns and habits in order to set yourself up for success. Since going to the restroom is most likely a part of your daily routine, you could try putting your sneakers on the toilet. Then each time you go to the bathroom, you'd have to grab your sneakers. From there, you might as well put them on and go work out. This is called behavior intercept.
How this relates to our finances: If you are the type of entrepreneur who logs into your bank account to see how much money you have and make spending decisions, then that's the equivalent of walking to the bathroom. We must have a system there! By having your money allocated to different bank accounts, you know exactly how much you have available to spend.
"I know it sounds overwhelming. Start slow, let it grow, and I suspect it will serve you. Your clients want you to be profitable." - MIke Michalowicz
Caring for yourself allows you to give back
We've said it before, and it's true: If you don't make enough money, you're not sustainable. You can't be there for your students. If you do things that are sustainable, then you can keep on giving.
"We think we achieve service through sacrificing ourselves. You must care for yourself. If you're not healthy, how can you help other people be healthy? If you're not financially stable, how can you be present to serve them? That's the framing you've got to change." - Mike Michalowicz
As a yoga teacher, it's likely that you encourage your students to care of themselves. The best way to communicate that is by caring for YOURSELF. We have to remember that in finance and business.
Financial worry can be so heavy that it impacts all areas of your life. When you remove that worry because you build a sustainable business, it's incredible what can happen after that!
Your next step
Your next step is to do one of these things:
Buy the Profit First book - it’s available everywhere in print and audio.
Read Profit First - if you have it sitting on shelf right now!
Implement the Profit First method - if you’ve been putting it off.
Until next time, give yourself permission to put profit first and grace along the way.
"We think we achieve service through sacrificing ourselves. You must care for yourself. If you're not healthy, how can you help other people be healthy? If you're not financially stable, how can you be present to serve them? That's the framing you've got to change." --Mike Michalowicz
About Mike
By his 35th birthday Mike Michalowicz (pronounced mi-‘kal-o-wits) had founded and sold two multi-million dollar companies. Confident that he had the formula to success, he became a small business angel investor… and proceeded to lose his entire fortune. Then he started all over again, driven to find better ways to grow healthy, strong companies. Mike has devoted his life to the research and delivery of innovative, impactful entrepreneurial strategies to you.
Mike is the creator of Profit First, which is used by hundreds of thousands of companies across the globe to drive profit. He is the creator of Clockwork, a powerful method to make any business run on automatic. And his latest, arguably most impactful discovery, is Fix This Next. In Fix This Next, Mike details the strategy businesses can use to determine what to do, in what order, to ensure healthy, fast, permanent growth (and avoid debilitating distractions).
Today, Mike leads two new multi-million-dollar ventures, as he tests his latest business research for his books. He is a former small business columnist for The Wall Street Journal and business makeover specialist on MSNBC. Mike is a popular main stage keynote speaker on innovative entrepreneurial topics; and is the author of Fix This Next, Clockwork, Profit First, Surge, The Pumpkin Plan and The Toilet Paper Entrepreneur.
Fabled author, Simon Sinek deemed Mike Michalowicz “…the top contender for the patron saint of entrepreneurs.”
Mike's Links
Website: https://mikemichalowicz.com/
Twitter: https://twitter.com/MikeMichalowicz
Instagram: https://www.instagram.com/mikemichalowicz/
The podcast episode Amanda listened to that changed her world - Being Boss:
Episode #73 (Profit First basics for yoga teachers): https://www.amandamckinney.com/post/number-one-tool-to-create-a-profitable-yoga-business