Insights from ‘Profit First’ by Mike Michalowicz

Question 1

What is the revised business formula proposed in ‘Profit First’?

Answer 1

Sales - Profit = Expenses

Question 2

Fill in the blank: The ‘Profit First’ system encourages taking a portion of each sale as _____.

Answer 2

profit

Question 3

True or False: In the ‘Profit First’ approach, profit is only calculated after covering all expenses.

Answer 3

False

Question 4

What does ‘using a smaller plate’ in the ‘Profit First’ system refer to?

Answer 4

Constrain operating expenses to shed excess costs over time.

Question 5

How often should financial assessments be done in the ‘Profit First’ system?

Answer 5

On the 1st and 15th of each month.

Question 6

What is one key benefit of allocating profit first in a business?

Answer 6

It helps convert a business from a cash-eating entity to a money-making machine.

Question 7

What question does an entrepreneur ask their team to encourage cost efficiency?

Answer 7

‘How can we keep doing what we’re doing for a third of the cost?’

Question 8

What is the purpose of creating separate bank accounts in the ‘Profit First’ system?

Answer 8

To allocate funds for income, operating expenses, owner’s compensation, taxes, and profit.

Question 9

Why does the ‘Profit First’ system suggest using a separate bank with withdrawal restrictions for profits?

Answer 9

To remove the temptation of using profits for regular expenses.

Question 10

According to ‘Profit First’, what is a sign of a healthy business?

Answer 10

A business that consistently allocates a portion of revenue to profit.

Question 11

List the four core principles of the ‘Profit First’ system.

Answer 11

Use a smaller plate, serve sequentially, remove temptation, enforce a rhythm.

Question 12

How does the ‘Profit First’ system recommend allocating profits quarterly?

Answer 12

Transfer profits and taxes to external accounts to keep them out of sight.

Question 13

In the ‘Profit First’ system, what is the initial suggested profit allocation percentage for businesses not allocating to profit yet?

Answer 13

Start by allocating 1% to profit, reducing 1% from operating expenses.

Question 14

Fill in the blank: Profit in the ‘Profit First’ system is considered ____ money.

Answer 14

play (or party) money

Question 15

Why is profit considered the best metric to measure business health?

Answer 15

Because it directly shows the business’s ability to generate surplus cash.

Question 16

Explain the ‘serve sequentially’ principle in the ‘Profit First’ approach.

Answer 16

Allocate sales revenue to profit first to increase satisfaction and reduce excess spending.

Question 17

Name one step a business should take every quarter according to ‘Profit First.’

Answer 17

Increase profit, compensation, and tax allocations by 1% and decrease operating expenses by 3% until target percentages are met.

Question 18

What analogy is used in ‘Profit First’ to describe constraining operating expenses?

Answer 18

Using a smaller plate, similar to dieting to reduce calorie intake.

Question 19

Why is it recommended to transfer funds to profit and tax accounts in a separate bank quarterly?

Answer 19

To make funds less accessible and reduce the temptation to spend them on non-essentials.

Question 20

At what revenue level does ‘Profit First’ suggest an operating expense allocation of 40%?

Answer 20

For businesses with $250K–$500K in revenue.

Question 21

How does ‘Profit First’ aim to transform a business over time?

Answer 21

By creating a habit of profitability and eliminating unnecessary expenses.