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Mike Michalowicz’s Profit First criticizes traditional business accounting methods by claiming that they are unintuitive, and that their unintuitive nature leads many entrepreneurs to failure. He then outlines an alternate accounting system, which he calls the Profit First method.
Here’s a review and background of Profit First by Mike Michalowicz.
In Profit First, Mike Michalowicz presents his own system of business accounting and financial management, which allocates a percentage of income as profit before calculating money for expenses. Michalowicz claims that this method allows an entrepreneur to create and maintain financial habits which will make their business more efficient, stable, and profitable.
About the Author
Mike Michalowicz is an author, entrepreneur, business makeover specialist on MSNBC, and lecturer. In the 1990s, he found initial success starting and selling two multi-million-dollar tech companies. By 2008, though, he had lost all of his money on ill-fated startups and ended up in debt. By studying his mistakes, he developed new methods and techniques to get himself out of debt and regain financial stability. Over the next decade, Michalowicz paid off his debt and now runs two multi-million dollar companies and authors books on how to run a successful business.
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The Book’s Publication
Mike Michalowicz self-published Profit First in 2014, and Portfolio later published a revised and expanded version in 2017. (This guide covers the 2017 version of the book.)
While all of his books are about entrepreneurship, Profit First is his best known work and is devoted specifically to money management and accounting. Profit First was Michalowicz’s third book, following his guide to startup success, The Toilet Paper Entrepreneur, in 2008 and his guide to business growth, The Pumpkin Plan, in 2012. Michalowicz has continued writing since the release of Profit First, his most recent books being a children’s money management guide (My Money Bunnies) and a marketing guide (Get Different).
The Profit First system of money management was originally a theory described in a brief section of Mike Michalowicz’s first book, The Toilet Paper Entrepreneur. After hearing from entrepreneurs who had tried his theoretical system and found success, he decided to expand and develop on that original theory by writing Profit First.
It fits into the category of books for simplifying accounting and financial management for entrepreneurs, particularly those running small to medium-sized businesses. This includes books like Gregory Burges Crabtree’s Simple Numbers, Straight Talk, Big Profits! (2011) and Dawn Fotopulos’s Accounting for the Numerophobic (2014). Michalowicz attempts to distinguish his book from others in the genre by pitching an alternative accounting system instead of trying to simplify existing systems.
The Book’s Impact
Profit First is on the Kindle best-sellers list for business accounting and the Apple Books best-sellers list for business and personal finance.
Michalowicz has also built a larger Profit First brand based on the methods explained in the book. The brand includes speaking engagements, a podcast, online courses, conventions, a blog, merchandise, and more. In addition, he’s created a network of accountants, bookkeepers, and coaches who use the Profit First system and help businesses adopt it.
The majority of Profit First reviews are positive, and many come from accountants and entrepreneurs who successfully adopted the Profit First system for their own businesses. There are also many positive reviews from other authors in the genres of business accounting and entrepreneurship. These reviews appreciate the simplicity of the book’s approach and the money and stability the Profit First system can offer a business owner. These reviews also emphasize Profit First as a way of life that reduces stress and makes all finances easy to understand.
Negative Profit First reviews online tend to criticize the book for being repetitive or for having a lack of significant ideas. Others say that the methods and techniques the book recommends are unnecessary, adding extra complexity to standard business accounting which works fine as is.
Commentary on the Book’s Approach
Profit First approaches its main arguments in two steps: First, Michalowicz presents anecdotes, testimonials, and examples of entrepreneurs and authors he knows who have experienced the problem being discussed or who have successfully used methods from the book. He uses these and behavioral psychology to create a narrative of a typical entrepreneur: An owner of a small or medium business who struggles with spending discipline and maintaining growth and profitability. Michalowicz then outlines why his method or guideline works for the typical entrepreneur and gives step-by-step instructions on how to implement it.
While this approach makes the book easy to read and understand, it also means that a reader who doesn’t fit the author’s description of a typical entrepreneur might be more likely to question how necessary his guidelines are, or why they are better than traditional business accounting methods. A reader that doesn’t have serious struggles with debt, spending discipline, or tracking their finances might find the book less relevant to their financial circumstances.
Commentary on the Book’s Organization
Profit First is divided into three clear parts. Part one (chapters one and two) explains what the Profit First business accounting method is and how it’s better than traditional business accounting. Most of the book’s main ideas are explained in the first two chapters of the book. The second part of the book (chapters three through six) explains how a business can set up the Profit First method. Finally, the third part of the book (chapters seven to 11) consists of how to use the Profit First method to address various problems your business might encounter, as well as additional optional tips and tricks that can be used to maintain spending discipline and financial health.
By establishing the book’s main arguments in the first two chapters, Michalowicz creates a solid foundation that allows a reader to connect all future points back to those original main ideas—although his consistent callbacks to those main ideas can make the book repetitive. Unlike parts one and two, the third part of the book has a vaguer focus, and as a result the later chapters overlap more often.