Profit First by Mike Michalowicz


What I liked:

           - Keep living expenses at the same level for the next 5 years OR

           - Wedge: Send 50% of the increasing income straight to savings.

           - Big future dream

           - Support the family (pay it back to bills).

           - Vault (emergency funds)

           - Toys and spending money

What I didn't like (doubts):

Key takeaways:

Accounting is designed for emotionless, rational robots. Entrepreneurs are human and need routines or habits that account for our human side, so that we actually use the system to improve our business.

Key principles of profit first:

  1. Portion control

"When less money is available to run the business, you will find ways to get the same results or better with less. You will be forced to think smarter and innovate more."

Take the idea of smaller plates for forced portion control and apply to business.

Set these portion sizes (allocation percentages) in advance and force yourself to adhere to them.

  1. Primacy effect

Whatever comes first, gets more focus. So we switch from "Revenue - Expenses = Profit" to "Revenue - Profit = Expenses".

  1. Out of sight, out of mind

Knowing that what is at hand will get spent, set a system that makes money untouchable if it is not supposed to be touched.

  1. Enforce rhythm

Set percentages as incremental targets and improve over time. This is great for driving the correct focus on efficiency and reducing wasted expenses.

The idea of the split bank accounts as piggy banks for specific purposes is also compelling. I cannot implement as I can't easily open bank accounts, but it is tempting (my situation is not normal).