How Profit First is helping my friend run his business

May 27, 2024 by Joshua
in Entrepreneurship, Stories

A friend who runs a business found the book Profit First by the guest of my podcast Mike Michalowicz. He shared in a private forum how much it helped him. Mike and I email, so I shared with him my friend’s post on how much his book was helping him, taking out the personal details.

Mike loved learning he helped an entrepreneur, so I’m glad I emailed him. Recently I thought, “Why only share it with Mike? Everyone can benefit from learning how Profit First can help people.”

Here’s what I emailed Mike. If you’re an entrepreneur or run a business, the book can help you. Plus it’s engaging to read. In the text below, I took out identifying details and boring parts. The horizontal lines split different posts, sometimes days apart.

Hi Mike,

A friend I told about Profit First finally read it and is doing it. He shared with me his Profit First journal and had to share some quotes for you. I hope it’s not too much, but it’s a fraction of what my friend wrote and I’m sure you’ve read many so know what to look for:

I’m going through Mike Michalowicz’s book Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine.

I’ve been frankly pretty surprised to discover how accurately Michalowicz captures a lot of the psychology I have as an entrepreneur and a lot of the very annoying struggles, such as “suddenly there are so many expenses I am barely paying myself anything even though we have a lot of revenue” and “we just need to have this one great promotion and then we’ll get more money in the bank again.”

He has some pointed and hilarious examples, such as having a conference where he talks about how a lot of business owners treat the point of their business as “growth”, but then when he asks them why they need “growth” it is about getting big enough to have profits. Then when he asks them why they can’t just have profits right now they kind of give him this confused look.

Fortunately, I am not as bad as a lot of the entrepreneurs he talks about. I do not take on extra debt, I do not put my own money back into the business (that is a one-way only street: business can pay me money, but I will not put money into business), etc.


Well, according to the Profit First calculations, our operating expenses are about 3.5x higher than they should be.

I should also be paying myself $9800/mo and socking away an extra $1000/mo worth of business profit.

We should basically have expenses of no more than $5800/month. Whereas last year we had expenses of (checks notes) $20,000/month??? Is that right? … I guess it is.

Seems I have some cost cutting ahead of me…


After going through our financials, we have $50K/yr of expenses that are entirely unavoidable: commissions to affiliates, coaching pay to coaches, payment processor fees, hosting fees, email delivery costs, and royalties on product sales to product creators.

Then we have costs like advertising, which is just a black hole of money for us, but I’m still hoping I can get working. We just have to use that cautiously and experimentally though unless/until I can get something that works consistently. We have been able to run ads at breakeven or slight profit… but not nearly profitably enough to justify either a.) continuing with in the Profit First system or b.) continuing to put nearly as much time into as I have been. I still really want to get ads working though, because if they do work, they’re a game changer…

Here are the places we can make cuts though:

[after listing the specific cuts]

we should be looking at around $108K less in expenses this year compared to last year


Mike is suggesting to move conservatively and not jump in with both feet.

I think this is good advice.

Right away I was thinking, “How much can I pay myself + sock away in profits, enough that it will HURT and FORCE me to make aggressive cuts?”

But it’s better advice to start slow and gradually work up.

So I think for now I am going to start with paying myself a $5K/mo salary and throwing $1K/mo into profits.

(edit: just set monthly automatic savings deposits from $500/mo to $1K/mo)

If after a few months our income (checking) account is growing, not shrinking, then the next step will be to increase distributions to profit + compensation… rather than looking for “more fun things to spend money on in the business” :p

I think there is also wisdom in setting up the “Taxes” account that Mike suggests.

If we are going to start having profits now, that also means we are going to need to be paying taxes every year.

Ultimately, if I make all these cuts, it will save the business $82K per year.

That’s not as much as the Profit First formula would have me make, but going from $240K/year in expenses to $160K/year in expenses is a good first step.

Probably once every half a year I need to repeat this process and see what else we can trim.

Now that it’s all listed out, it’s time to make the cuts.

Mike Michalowicz

There’s more. I didn’t want to fill your email too much, but I figure you’d enjoy reading.

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