Best Of: Take Your Profit First
Is your firm struggling with cash? Are you not bringing home enough money?
If the answer is yes, then it’s time to implement the Profit First system (from the book Profit First by Mike Michalowicz).
Owner’s Pay v.s. Profit
Before we get into anything let’s define Owner’s Pay and Profit.
Owner’s Pay is your salary for working.
Profit is what the firm made after all expenses were paid.
The Problem
What is causing this cash problem?
The root of the problem is human nature.
Mike Michalowicz likes to call what we do “bank balanced accounting” and that is where we naturally look at our bank accounts each morning and one of three things will happen:
- The account is negative and now you have to get it to positive before you get a penalty.
- There is little money in the bank, so you try to get extra work so you can get the money you know you’ll need.
- There is plenty of cash and what happens next is called Parkinson’s Law.
Parkinson’s Law states that given a finite resource, our needs for that resource will increase to occupy the entire source.
So whatever amount of money is in the bank you will find a way to spend it until there’s nothing left.
The Solution
To solve this problem we have to come up with a system that will overcome human nature.
It’s very simple. The answer is to take the profit first.
You’re probably saying “if I didn’t have the money before, then how will I have enough now?”
Once you understand human nature and Parkinson’s Law, you’ll realize how it works.
Here’s an example to explain it:
The Toothpaste Example
When we brush our teeth and use a full bottle of toothpaste, we use a nice sized glob that covers the whole brush. As we get towards the end of the tube, we start to use less. When we get to the very end, we use a little pea sized glob and somehow that is still enough.
In the beginning there was plenty of toothpaste, so we used a larger amount, even though we only needed a small amount.
When you take the profit first, you’ll figure out how to survive on the money that’s left, just like you managed with less toothpaste.
The last thing to do is make a schedule. You set a time twice a month to pay your bills, this way they will all get paid on time. Once you schedule that time on your calendar, it’s an appointment so it won’t interfere with anything else.
For a More Thorough Look Into Profit First, Don’t Miss
Episode 18: Profit First Step-by-Step
P.S.
On a little side note (but an important one), I want to share how important vacation is. As business owners we tend to not take time off, since we don’t get paid vacation. However, it’s imperative to your law firm that you take a vacation at least once or twice a year. Everyone’s energy gets depleted at some point. We all need to recharge and if we don’t we are less productive and the results will show in our businesses. So, take that vacation, come back more excited and invigorated than ever before and use that energy to give your law firm the boost it needs.
Resources
Profit First by Mike Michalowicz
Profit First Cheat Sheet and First Two Chapters of the Book
https://www.profitwithlaw.com/profitfirst
Profit First Implementation Pod
https://www.profitwithlaw.com/pfapply
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Author
Moshe Amsel
Author
Moshe Amsel the host of the Profit with Law podcast is not an attorney. As the owner of a successful accounting firm DreamBuilder Financial and Law Firm Growth coaching organization Profit with Law, Moshe has proven that there are better and different ways for a law firm to do business and be successful.
