Profit First Explained: The Core Concepts

The Problem with Traditional Accounting

Traditional accounting tells us: Sales - Expenses = Profit

But here’s what actually happens: Sales - Expenses = Whatever’s Left (Usually Nothing)

The traditional formula treats profit as a leftover. An afterthought. Something that happens IF there’s money left over after paying everything else.

The Profit First Formula

Mike Michalowicz, author of Profit First, flipped the formula:

Sales - Profit = Expenses

This simple change forces you to:

1. Take your profit FIRST
2. Run your business on what remains
3. Get creative with expenses instead of sacrificing profit

The Core Bank Accounts

Profit First uses multiple bank accounts to manage your money:

1. Income Account - Where all revenue comes in
2. Profit Account - Your reward for being in business (save 1-5% to start)
3. Owner’s Pay Account - Your salary/draw
4. Tax Account - Set aside for quarterly and annual taxes
5. Operating Expenses - What’s left to run the business

Getting Started This Week

Here’s your homework:

1. Open a separate savings account for Profit
2. Set up an automatic transfer of 1% of revenue to that account
3. Watch your profit grow—even if it’s just a few dollars at first

The psychology of seeing money in a “Profit” account is powerful. It proves that profit is possible, and that momentum builds.

Resources Mentioned

• Profit First by Mike Michalowicz
• Profit First Professionals

Next Episode Preview

Next week, we’ll walk through exactly how to set up your bank accounts for Profit First. I’ll share my recommended banks and the exact steps to get started.

See you then!