Businesses have generally considered profit to be what is left after all the expenses are paid. Mike Michalowicz, in an article entitled “Is There a Profit Crisis in Your Small Business? If So, Here’s How to Face It” argues that small businesses must rethink how they look at profit.
He argues that business must start by taking profits out of revenue before expenses. A business should take the first 1% of all revenue and place the money in separate account. Michalowicz understands business owners are reluctant to do that. They think they won’t be able to pay the bills. He believes it forces businesses to be more lean and efficient, and they will find a way to pay the bills. That way, business owners will have profits set aside, and the money can be used to pay them or reinvest in the business. This is a way to address the small business profit crisis.
He has witnessed hundreds of business that practice the profit-first philosophy and it works. These businesses have been transformed and operate as efficient and lean entities. Businesses are a success from the start and not money-losing operations with the profit-first method. Business owners take pride in knowing that they were able to take, even if it’s a small amount, of money out of their operation as profit.
Michalowicz believes the profit-first mindset generates a completely different mentality among entrepreneurs. They can look at themselves as successful and address the small business profit crisis.
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