Podcast Summary: Private Practice Startup Podcast

Episode 119: How to Make Your Business Profit First

Date: January 19, 2019
Hosts: Dr. Kate Campbell & Katie Lemieux
Guest: Mike Michalowicz (Author of Profit First, Clockwork)

Episode Overview

This episode dives into the transformative Profit First method for business financial management, with insights from its creator, Mike Michalowicz. The discussion focuses on helping private practice owners and entrepreneurs shift to a profitability-focused mindset and simple behavioral changes to make their businesses more financially secure and ultimately more successful.

Key Discussion Points & Insights

1. Why Profit First?

• Mike shares his personal financial failures and business collapse—losing his fortune, house, and possessions after selling two companies, leading to a period of rebuilding from rock bottom.
• Main realization: Traditional business accounting encourages profit to be “what’s left over,” which rarely results in consistent reward for the business owner.
  • Quote: “I attributed luck to smarts and strategy… I didn’t really understand how finances worked.” (06:51)

2. The Envelope System for Modern Businesses

• Inspiration came from his mother’s envelope system: allocating cash into physical envelopes for different needs (food, mortgage, etc.).
• Profit First adapts this method into separate bank accounts for business income, profit, owner’s pay, taxes, and operating expenses.
  • Quote: “Have that money divided up or pre-allocated to its purpose—envelopes.” (09:17)
• Key message: Pre-allocating funds compels you to spend only what’s available in each category, reducing “panic” financial decisions.

3. Behavioral Psychology Behind Money Habits

• Mike describes the “manana syndrome”—if profit comes last, it rarely happens. By prioritizing profit (Sales – Profit = Expenses rather than Sales – Expenses = Profit), the business is forced to become profitable by design.
  • Quote: “When something comes last, it’s less likely—by far less likely—to occur.” (11:46)
• Loss aversion: Setting aside taxes and profit before seeing the money prevents the psychological pain of “giving up” money later.
  • Quote: “Once we possess something, our grip onto it is almost like talons.” (14:03)

4. The Power of Multiple Accounts

• Don’t stop at the five core accounts—customize and add more for needs such as emergency funds (“The Vault”), future investments, team bonuses, or giving.
• This flexibility allows you to plan for growth or generosity without undermining your own financial foundation.
  • Quote: “If you have specific financial requirements… you can set up more than just the five foundational accounts.” (21:09)

5. The Survival Trap and Planning for Crisis

• Businesses in “survival mode” make impulsive choices; with a cash buffer, you gain time and rationality to make decisions consistent with your vision.
  • Quote: “We need to get out of this panic mode. When you have a cushion, it allows that breath, that extra breath, say, ‘Okay, stocks, we’re going to lose money on this, but at least we have the cushion.’” (17:53)
• Real-world example: Hosts recount using their own emergency account during Hurricane Irma, protecting payroll and refunds.

6. Giving Back—The Right Way

• “Put on your own oxygen mask first”: Only give charitably from surplus, not at the expense of your own security.
  • Mike now keeps a dedicated “Family” account for helping team members in need.
  • Quote: “Whoever said you have to sacrifice yourself to give effectively was a real jerk because that’s not true.” (23:22)

7. Making Profit First Stick: Start Small

• Mike’s #1 advice: Start with just one new account (profit) and save 1% of income—immediately.
  • Build the habit without pain, then increase over time.
  • Quote: “If you can run your business off $1,000, you can run off $990.” (28:30)

8. From Profit to Time Freedom—Introducing Clockwork

• Mike introduces his next book, Clockwork, which focuses on organizational efficiency—building a business that can run without the owner, providing time as well as money.
  • Quote: “You can have a business that makes all the money in the world, but if you’re carrying the business on your back… it’s not serving you.” (30:54)

Notable Quotes & Memorable Moments

• Profit must come first, not last:
  “Instead of sales minus expenses equals profit, it’s sales minus profit equals expenses.” (12:00)

• On tax savings and loss aversion:
  “We pre allocate money to taxes, therefore we never take possession of it…we feel good—particularly if there’s a little bit left over as a secondary bonus.” (15:19)

• On adapting Profit First:
  “Set up other accounts, nickname them for their intended purpose, and see if your business can handle the cash flow.” (21:09)

• Giving starts at home:
  “We need to put on our oxygen mask first…care for yourself first, really to build that muscle.” (23:22)

Timestamps for Key Sections

• 06:51 — Mike shares his financial collapse and business rebuilding
• 09:17 — Explanation of the envelope system and bank account method
• 11:46 — Flipping the profit equation; behavioral money habits
• 14:03 — Loss aversion applied to taxes and profit
• 17:53 — The “Survival Trap” and importance of a cash buffer
• 21:09 — Beyond the basics: customizing Profit First accounts
• 23:22 — How (and when) to give back in business
• 28:30 — Easy action steps: open an account and start with 1%
• 30:54 — From money to time: preview of Clockwork

Tone & Takeaways

• Tone: Upbeat, practical, and encouraging. Conversation is accessible and rich with real-world examples.
• Takeaway Message:
  • Behavioral changes—not willpower—create sustainable, profitable practices.
  • Start small, make business profit a habit, and slowly grow your financial muscle.
  • Care for yourself and your team first—then you can meaningfully contribute to others.
  • Profit First is simple to implement and can fundamentally change your relationship with money.

For Further Learning

• Mike Michalowicz’s Website: mikemichalowicz.com
• Read Profit First: Take action with even just 10 pages a day.
• Upcoming Book: Clockwork (focus on freeing up your time, not just your money)

Whether you’re drowning in receipts or too afraid to look at your bank balance, this episode will have you excited to make your practice, and your life, ‘Profit First’—one small, do-able change at a time.