Concept
Small plates
Small plates is Michalowicz's principle that owners spend what is in the account the way people eat what is on the plate. One large account is a large plate; four small accounts, with profit and tax out of reach, make the business run on the operating money because it has to.
The insight is that financial discipline in a small business is a matter of structure, not character. An owner looking at a single account with the month's income in it sees spendable money, and expenses rise to meet it. The same income split into profit, owner's pay, tax and operating shows a much smaller operating balance, and the owner, without any change in willpower, finds the cheaper supplier and postpones the purchase. Michalowicz pairs it with a rule: never move money back from the profit or tax accounts to cover operating shortfalls. A shortfall is information about prices or costs, and covering it from profit hides the information and defeats the plates.
A real-life example
A physiotherapist who has never separated tax finds that once fifteen percent of every deposit goes to a tax account he cannot see, he stops treating it as his money, and for the first time the tax bill is waiting in an account when it arrives.
How to use it
- 1Keep the four accounts at a bank where you cannot see them all on one screen if that helps.
- 2Treat the operating balance as the only spendable money.
- 3When operating runs short, change a price or a cost, never the split.