This transcript was generated from the episode audio and may contain minor errors.
[Music]
Welcome back to Side Hustle School. We are in the very beginning of a new month, episode 2,618 here. And we're gonna talk about the model known as Profit First. This actually comes to us from my friend and perhaps your friend as well, Mike Michalowicz. Mike is a great guy.
I've talked about his books a couple of times. So he's created this whole model that's like an alternative accounting model, essentially, not just accounting, but a whole financial strategy. And a listener is calling in from Corpus Christi, Texas. This listener has been doing graphic design and they wanna kind of remix their accounting or their financial management. And they're thinking about using Profit First.
So I'm happy to talk about this because as I said, Mike is a friend. I think beyond just the fact that he's a cool guy, this model is actually very helpful for lots of people. And his whole premise, the whole premise of Profit First is that a lot of businesses don't actually make money. A lot of small businesses are very focused on expense and they put the owners last, like the owner is the last person to get paid. And Mike is kind of like, hey, if you're running a business, aren't you doing it to make money?
And why don't you actually pay yourself first? And as I said, kind of remixed the whole understanding of income and expenses and such. So this listener is curious about the applicability of Profit First to his small service-based business. Particularly given the often unpredictable nature of freelance income. So let's explore if it can work in this business and perhaps yours.
We'll talk about potential challenges and downsides. They're not too many, mostly it's upsides. But I will get into as many details as possible without overwhelming you because we like to keep things short and action-oriented. Detailed question and my answer in just 30 seconds. [Music]
My name is Theo from Corpus Christi, Texas.
I've been running a freelance graphic design business for a couple of years. And while I'm passionate about my work, managing finances isn't my strong suit. So I recently came across the Profit First model and am intrigued by its approach to business finance management. Now, considering the size of my business and the irregular nature of freelance income, is this a practical model for me? What are the potential challenges or downsides to implementing Profit First in a small service-based business?
[Music]
Theo, let's talk about it. Potential challenges or downsides. Well, let's do the downsides first. Then we'll talk about the upsides. I think I said in the introduction that there aren't any downsides.
And there is one, I thought about it. It requires a shift in mindset to implement an all new financial model. It requires a shift in mindset. It can take some time to adjust. Sometimes in life and work, we just kind of get by by doing the things that have always worked.
And that's not always bad. Like we don't actually have to have transformative experiences in every part of our lives. In some cases, having some routine and predictability can help us to grow elsewhere. So that perhaps is the only challenge or downside. The upside is that that change of thinking, that change or that adaptation can be really good.
And basically the model of Profit First, it kind of flips the traditional formula. You know, the traditional formula of revenue is sales minus expenses equals profit. And Mike suggests sales minus profit equals expenses. In other words, you take your sales, then you got to pay yourself first. Then you think about your operating expenses.
So for a freelancer, this can instill discipline in managing your finances and making sure you're not just working to pay bills, but also securing profits. If you have a lot of questions about this, I totally understand. Mike has a whole book about it. He's got a bunch of free resources. If you look at ProfitFirstBook.com, you can get a whole detailed overview of one sheet, frequently asked questions, graphics and charts, all that kind of stuff, completely free.
So it doesn't always work for every business, but I have heard a lot of people have a lot of success with it. And even if you don't implement a whole model, just thinking about the idea of ProfitFirst, I think is helpful. That's actually the most helpful thing for me. But in short, can it work for freelancers like you Theo? Absolutely, for sure.
And I think financial discipline and taking profits are good for every small business owner and side hustler out there. So listeners, I'm cheering you on. I want you to be able to make money. That's what this is about. I mean, money isn't everything, but you need to make money from your side hustle so that you can do more and then grow your business if you want to grow your business, but mostly do stuff for yourself, right?
So you have financial freedom, that's the goal. sidehustleschool.com, there's some resources, mailing lists, show notes for every episode. This has been 2,618. More coming up every single day. My name's Chris Guillebeau.
This is Side Hustle School. [Music]
From the Onward Project.
