While pumping out a workout at the gym today, I had the fortune of choosing a great podcast episode to listen to. In this particular episode of the Ecommerce Influence podcast, Mike Michalowicz (who founded and sold two multi-million dollar companies by 35) explained that many small business owners live check to check because they don’t make sure that they’ve paid themselves first. He says that most small business owners first take out expenses and then see what’s left afterward. However, if one were to pay themselves a profit first, then they would concentrate more heavily on how to reduce expenses in order to pay bills since profit has already been paid out.
I thought this was excellent advice because too often business owners can take expenses for granted and short-change themselves in the profit area.
Here’s Mike’s advice on how to get started doing this: simply set up a separate bank account in which you deposit profit after receiving revenues. Start by simply paying yourself 1% of revenues as profit. The remainder goes into the typical bank account to pay expenses from. After awhile, increase the percent of profit you pay yourself. You’ll be surprised as to how this focuses you to reduce unnecessary costs that have been robbing you of your due profit.
You can listen to this podcast episode by visiting the site of Ecommerce Influence for episode 57.
Mike also has a book out on this subject if you’re interested in a deeper dive into it. You can find his book along with reader reviews on Amazon here.