Profit First

Everyone who has ever brushed their teeth (hopefully this is everyone) understands the game that gets played when faced with squeezing every last drop out of the tube of toothpaste. You twist and turn and bend and maybe even put your whole self into this exercise. No matter how you go about getting that last drop on your toothbrush, I’d like to explain how this can relate to your financial success.

One of the main principles in a book titled, Profit First by Mike Michalowicz talks about a simple concept called, “Parkinson’s Law”. In 1955 C. Northcote Parkinson came up with the counterintuitive Parkinson’s Law: that the demand for something expands to match its supply. In economics, we call this induced demand.

Remember in school, if the teacher gave you a month to complete a project, when did you finish it? Probably the night before, right? If an assignment was due the next day you finished it on time I would imagine. When you get free refills you don’t have just one, right? How about when roads expand, guess what... more cars show up on those roads.

Back to this tube of toothpaste. When you have a fresh new tube, you enjoy putting a big ‘ol glob on your toothbrush. You don’t even mind when you drop some in the sink. Why, because you have what you feel like is an everlasting amount.

The scene changes when you open your drawer to find a skeleton looking tube with hardly any left. Don’t you feel like you can make that tube last for weeks on end? I know I can. Maybe it’s because we become more frugal as our supply diminishes. Maybe it’s because we get more innovative on how to extract those last drops.

Here’s the parallel. When you make less toothpaste available, you can make it last longer. When you don’t have access to all of your money, your business can thrive off of less. By running your business on the basis of “Profit First”, you remove the temptation to put all your money in one account. By setting up multiple accounts and removing the Profit from your business first, you learn how to operate your business more effectively, more efficiently, and more innovation occurs. Not to mention, you become more profitable.

And let’s be honest, isn’t that why you started your business in the first place? When you focus on taking your profits first, you are building a healthy, sustainable business. So, next time you are squeezing the tube of toothpaste remember, there is a lesson about money in there.

Order your book here and learn how you too can Profit First!

Brad Noll