The book review for this week is Profit First by Mike Michalowicz.
Michalowicz introduces a new and unique way of managing the financial side of your business. Rather than running your business using traditional GAAP based reporting, he introduces an approach that keeps the business owners focused on profits not on Revenue, SG&A or COGs.
His point is that profit is not an event . . . Profit must be baked into your business every day, every event, every transaction. The best way to do this is to build a system that puts profit first and not GAAP accounting (although the accounting still must happen). Michalowicz lays out a simple but powerful system that does this.
My takeaway from this book is the simple system he defines. Basically, every penny that comes into your business is allocated into five buckets (shown below) based on an allocation formula that he provides. You can then manage profit very clearly which then drives cash flow, expenditures, owner’s compensation, etc.
- Owner’s Compensation
- Operating Expenses
Note that I have previously reviewed the following books in 2018:
- Tim O’Reilly’s Whats the Future and Why Its Up to Us
- Steven Pressfield’s The War of Art
- Timothy Ferriss’ Tribe of Mentors
- Richard P. Feynman’s Surely You’re Joking Mr. Feynman!
- Bernadette Jiwa’s Hunch
- Scott Galloway’s The Four
- William Mougayar’s The Business Blockchain
- Fredrik Haren’s The Idea Book
- David Burkus’ Friend of a Friend
- Stay on Top of Your Work podcast episode #15
- Blue Ocean Shift by W. Chan Kim and Renee Mauborgne
- Ideas and Stuff Podcast episode #50
- Tom Peter’s The Excellence Dividend
- Travis Christofferson’s Tripping Over the Truth
- Michael Zipursky’s The Elite Consulting Mind
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