Quote
“Sales - Profit = Expenses.”— Mike Michalowicz, in Profit First (2014) · Profit First →
Why it was said
Mike Michalowicz builds all of Profit First on this reversal of the accounting formula. He arrived at it after two exits and a lost fortune, watching profit stay a leftover in every business he touched.
What it actually means
The standard formula, sales minus expenses equals profit, is correct and ruinous, because expenses expand to fill whatever is in the account and profit never arrives. Michalowicz's version is not mathematics but behaviour: take profit first as a fixed percentage of every deposit, and make the business learn to run on what remains. The sentence turns profit from a hope into a decision.
How to use it
- 1Open separate accounts for profit, owner's pay, tax and operating, and split every deposit by percentage on the tenth and twenty-fifth.
- 2Start the profit percentage where the business can bear it, even one percent, and raise it a point a quarter.