The Money Formula That's Robbing Your Bank Account

Hi Reader,

💡 Today's Niblit: In Profit First, Mike Michalowicz exposes the fatal flaw in traditional business accounting. The standard formula "Sales - Expenses = Profit" relegates your financial success to whatever's left over—which, for most business owners, is nothing.

🔑 Key Insight: The traditional accounting equation "Sales - Expenses = Profit" is fundamentally backward. When profit comes last in the equation, it becomes whatever scraps remain after expenses—and those scraps are usually nonexistent because expenses always expand to consume available resources.

Consider a plate of food at a buffet—you'll naturally fill it completely because the space is available. Similarly, in business, if all your revenue is available to spend, you'll find ways to use it all, leaving nothing for profit. It's not about discipline; it's about human nature and the psychological pull to use what's available.

Why does this matter? Because this broken formula has created generations of hardworking entrepreneurs who run on the hamster wheel for years without building wealth. By flipping the formula to "Sales - Profit = Expenses," you ensure profit isn't an afterthought—it's a non-negotiable priority extracted before expenses even enter the picture.

🦉 Nibble of Wisdom: "If you follow the traditional accounting principle, profit is an afterthought. If you run your business following Profit First, profit is the priority." (Chapter 3)

🛠️ Practical Tip: Rewrite your business formula on a sticky note: "Sales - Profit = Expenses" and place it where you'll see it daily when handling finances.

🚀 Quick Action: Calculate what your business would look like if you immediately reserved 5% of all income as profit. How would you adjust your expenses to operate on 95% of your current budget? Choose one expense to cut or reduce this week.

🔍 Further Exploration:

• Apply this formula to your personal finances: "Income - Savings = Expenses" instead of saving what's left after spending.
• Track your business or household expenses for one week with brutal honesty. How many were essential versus convenient or impulsive?
• Learn about mental accounting bias and how it affects your spending decisions when money isn't properly segregated.

🎬 Wrapup: Remember, profit isn't a reward for running a good business—it's a fundamental requirement for sustainability. By flipping the formula and taking your profit first, you're not being greedy; you're ensuring your business serves its primary purpose: creating wealth for you, its owner.

🔗 Links:

• Check out Profit First by Mike Michalowicz on Amazon
• ​Profit First on Kindle​
• ​Profit First Audiobook​
• How to read Profit First for FREE​

Flipping formulas with you,

Tom "prioritizing profit" Bernthal

Thank you! Thank you for joining the Niblits community. If you have questions, suggestions or want to chat, hit reply. ​Share Niblits with friends. If you'd like to get access to more books and ideas, tap here to see how you can help me grow Niblits faster!

Update your Niblits newsletter options | Unsubscribe
​113 Cherry St #92768, Seattle, WA 98104-2205