Profit vs. owner's compensation distinction

“I actually call myself – lovingly – the angel of death because I was not an angel investor. Yeah, I destroyed businesses and, in the process, wiped myself out financially.”

– Mike Michalowicz

I believe that the message in Mike Michalowicz’ book, Profit First is both elegantly simple and powerful

I’ve adopted most of these strategies over the past 6 months and my business has already become more profitable, and my cash-flow management is clearer and smoother than ever before.

This interview of Mike is going to follow two parallel paths.  As a financial advisor YOU are a business owner AND you probably serve a lot of business owner clients.

This interview will give you ideas to bring more value to your clients, and at the same time help you reflect on the profitability of your own business.

Bill and Mike discuss:

1. Profit First Mentality:
   Mike shared his personal story of financial reset, revealing how shifting your approach to “profit first” can change everything. Instead of waiting for profit at year-end, set it aside from every transaction – just like you pay yourself first in personal finance.
2. Behavioral Hacks for Profitability:
   Discover the “small plates” strategy. Just as smaller dinner plates lead to smaller portions, breaking your income into dedicated accounts (profit, owner’s compensation, taxes, OpEx) naturally guides prudent spending.
3. Why Most Business Owners Struggle:
   Did you know 83% of small businesses are living paycheck to paycheck? The traditional formula – sales minus expenses equals profit – actually sets most up for failure. With Profit First, sales minus profit equals expenses, forcing you to run your business sustainably.
4. Debt & Profit:
   Think you need to pay off debt before saving profit? Think again – profit is the muscle you need to build to sustainably pay down debt over time.
5. Owner’s Compensation vs. Profit:
   Mike Michalowicz clarified the crucial distinction: Owner’s compensation is your salary for running the business. Profit is a bonus for taking the risk. Don’t confuse or commingle these!
6. Holistic Advising:
   Advisors, there’s a massive opportunity in linking business and personal finances for your clients. Don’t leave the business side to the accountant – address both for true financial independence.
7. Commitment Devices: ! This is Powerful !
   Setting up systems (like hiding your profit in a different bank account) creates “commitment devices” – behavioral nudges that help you stick to your plan, just like leaving your gym shoes on the toilet lid to get moving in the morning.

Whether you’re a solo advisor, own a small business, or even part of a larger firm, Profit First adapts. The sooner you start, the greater the impact.