How do you know if you have a business or a glorified job? The two areas to look at will be how much time you spend on the business and how much money you get out of the business.
This short post will focus on how much money you’re paying yourself with a quick recap of Profit First by Mike Michalowicz.
But before that let’s clear up a common entrepreneurial fallacy when it comes to finances. Reinvesting all of your profit back into an SMB should only be for a limited time. Not taking profit for over a year or two means that you have poor money management and aren’t being innovative enough.
And the only three times in a business’s life that this applies to are in the start-up phase, during a black swan, or post-acquisition, where the integration will require some capital to stabilize the business. That being said, here is your one-page recap of Profit First.
The old way of doing business is Sales – Expenses = Profit.
The right way of doing business is Sales – Profit = Expenses.