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The Profit Crisis… And How You Can Solve It

Think there’s not a profit crisis?  The Small Business Administration conducted a recent study and found that of the 28 million small businesses in the US, about 83% are not profitable.  That’s a shocking statistic.  The vast majority of small businesses lose money.  That means these small businesses are likely to close, ending job opportunities and reducing incomes for millions of families.

How do so many small businesses fail to turn a profit?  It turns out that it’s because of the way we think about profit – our profit mindset.  We talk about “year-end profit” or “the bottom line.”  We consider profit to be whatever is left over after we pay all our bills. 

The problem?  Too often, there’s nothing left over.

We think of profit as an event – something we will eventually, at long last achieve.  It’s just over the next hurdle, just around the bend.

The trouble?  Profit isn’t waiting for us to arrive.

What we need in order to solve the profit crisis is a new perspective – a completely new way of thinking about and achieving profitability for our companies.  And here it is:  You take your profit first.

Every single bit of revenue that comes into your company becomes a step toward profitability.  When you get a check, you deposit a predetermined percentage into a separate account that’s designated as your profit account.  You open this account at a new bank, and you don’t link it to a debit card.  You don’t pull funds from it to pay bills.  This is your profit account, and you fund it first, every single time money comes in.

Now you may be just barely getting by right now, and you may worry that you won’t be able to pay your bills if you start setting aside profit first.  But here’s the secret…you’ll find a way.  You’ll become more frugal.  You’ll drum up more business.  You’ll learn to do more with less.  Think about it – if you lose a client (and future revenue) you don’t just close up shop, right?  You find a way to make it work.

Now I know that putting profit first works.  I’ve seen hundreds of companies all over the world transform themselves into lean, specialized, profitable businesses.  But for people who are apprehensive, I suggest starting small.  Try taking 1% of your revenue as it comes in and starting that profit account.  1%?  You’ll never miss it!  But as you watch it accumulate, as you realize that you can still pay your bills and sign your staff paychecks, you’ll begin to understand how it works.

We must learn to prioritize profit if we are to succeed as entrepreneurs.  And to be clear, I’m not saying that money is everything in life.  But if you want your business to thrive…if you want to be able to provide for your family, you owe it to yourself, your employees, and your community to run your business profitably.

The solution to the profit crisis is to shake off the old mentality – that profit is what’s left over – and to adopt a new mindset – profit comes first.

About the author

Mike Michalowicz (pronounced mi-KAL-o-wits) started his first business at the age of 24, moving his young family to the only safe place he could afford – a retirement building. With no experience, no contacts and no savings he systematically bootstrapped a multi-million dollar business. Then he did it again. And again. Now he is doing it for other entrepreneurs. Mike is the CEO of Provendus Group, a consulting firm that ignites explosive growth in companies that have plateaued; is a former small business columnist for The Wall Street Journal; is MSNBC’s business make-over expert; is a keynote speaker on entrepreneurship; and is the author of the cult classic book, The Toilet Paper Entrepreneur. His newest book, The Pumpkin Plan has already been called “the next E-myth!”