welcome to the e-commerce marketing podcast today’s guest is my McCullough. And my cut founded and sold to multi-million dollar companies by his 35th birthday and confident that he had the formula to success he became an angel investor and proceeded to lead to lose his entire Fortune, then he started all over again driven to find better ways to grow healthy strong companies among other Innovative strategies might created the prophet fast formula.
Away for businesses to ensure profitability from their very next deposit for Mike is now running in his third million dollar Venture is a former small business columnist for the Wall Street. Journal is the former MSNBC business makeover expert and is a popular keynote speaker on Innovative enterpreneurs topics and is the author of profit first such the pumpkin plant and the toilet paper entrepreneur which Business Week them.
The enterpreneurs called classic welcome to the part of Mike L. Thanks so much for having me. I appreciate it. That was a lot to read a yeah. That was a lot. We should do a shorter one next it was a lot, but yeah, you’ve accomplished a lot from West lations, and yeah get that could be hot. Thank you yeah, I’ve complex reliable.
I’ve more I’ve had more dark days and more challenges quite. Frankly than anything else, and I think that’s that’s the important part. I you know people listening to show me say oh. Is another blow hard always successes and those are just a few bullet points of wonderful compliments that I was blessed to have but the reality is a lot of my external life is been struggling Challenge, and and I’m devoted now to fixing that stuff for myself and hopefully for others to okay and before we get into talking about the prophet fast formula.
Why don’t you just give us a summary? I mean, I not mentioned a lot of the intro, but why don’t you just give us a little bit more about yourself sure so? I’m an entrepreneur real college. I started my first business, and I’ve done that for two decades now, but about eight years ago. I decided to devote my full attention to being an author so while I still own a business sector own a couple businesses today.
I don’t run those businesses. Would I do full-time is study the business successes and business failures and try to figure out what the triggers are for success, and I’ve written four books. Most recent call Private first I was wrote a popular book called The Pumpkin plan and a couple others and quite.
Frankly everything I write is is based upon mistakes. I made, and I’m trying to fix my own ways by researching and discovering others do and I’ve been very fortunate very blessed. I feel that my books have resonated with entrepreneurs and serving them, too. Okay, so again. Thanks for being on the podcast.
Why don’t we go into the prophet fast formula? What’s the prophet fast formula so the existing formula that all entrepreneurs follow and this includes in the e-commerce space is that sales minus expenses equals profits the foundational formula for business, and I discovered that that formula even though.
It’s been around forever and foundational. It’s actually a lie. It’s wrong most businesses. Are not profitable they fall follow that formula, but they’re not profitable and there was a study conducted in part by the SBA. There was other organizations as far as I know and they discovered the eighty-three percent of small businesses small business defined by the SBA is a company that does 25 million dollars in Revenue glass that 33 percent are not profitable.
What profit first is is I built a system. That’s not based on logic but based on Behavior the. Station that it is human nature when something comes last it gets ignored so when we say profit is the bottom line or the year, and that’s all terms for saying is the last consideration and therefore it ever happens for most businesses.
We wait till the year-end the prophet didn’t occur were upset. We say well. Maybe next year it will and then it doesn’t and then we can’t and down the road further and say maybe the year after so the fundamental shift. I’m arguing is that profit comes first the formula is now sales Offered equals expenses and in practicality what I’m saying is every time money comes into your business every time you have a sale.
You immediately take a predetermined percentage and allocate that money to a profit account literally taking your profit first, and then this mandates that your business runs off the remainder that your expenses are in tune with a profitable business because if you do the reverse our expense just grow to our sales, and we’re never profitable.
That’s not healthy business if we take our profit first we are forcing our business to be designed in a healthy way and when you can’t pay your bills in that scenario. It is your business telling you that you can’t afford those bills. We are reverse engineering profitability the right way for business to run OK, and one of this tabs that make up the prophet fast formula.
Yes, there’s basically four fundamental steps in my book. I detail a lot more, but there’s four core things. You need to know the first thing. Is that most business owners run their business author bank accounts like all bank balance accounting? I log into my bank account. I see how much money is there now accountants and bookkeepers and any Financial professionals.
They never do that don’t run it based upon the money you see instead read all the financial charts the bank. The bank statement the cash flow statements the profit and loss statement all these documents yet most entrepreneurs myself included revert to bank balance accounting because it’s easy and I can trust my gut well instead of changing our Behavior like accountants and bookkeepers have been telling to do for years and are decades actually centuries.
We need to set up a system that works around our existing Behavior, so step one is. At your bank set up multiple accounts have one set by find minimally five ones an income account only for the inflow of cash the seconds they profited account to accumulate profit. You know the reward for finding a business the third account is an owner’s comp account.
This is the pay you receive a salary for being an owner operator of the business the next counts tax the business should be paying your taxes on your behalf plus all its corporate responsibilities and the final count is called. Expenses and what this allows us to do is money flows into the business is that we allocate money out in advance to spending it meaning.
We allocate money out to its purpose before the money flows out of the business, so we know its intended purpose if you just have one account like most of us. Do you spend money on the? Oh, I need to pay those bills, and we revert to that, but when you pre allocate money out to his different responsibilities first.
You know what I meant money is available for what purpose. That’s the first step okay, and once the Second Step second step is the sequence so most of us as I alluded to most of us revert to the Urgent. We see the money flowing into our business, and then what we do is we pay bills first so the sequence of most businesses is receive money pay money receive pay and we get stuck in the front.
End of the old formula cell pay expenses cell pay expenses. There’s never profit the first thing we need to do once money comes in the business is to allocate it to its purpose so the sequence we do things is important when money comes in no longer pay your bills first when money comes in. First transfer to these different accounts if we set up based upon predetermined percentages maybe 10% profit may be paying yourself 30% of the Top Line may be reserving 15% for your tax liability, and then the remainder goes into operating expenses allocate money to its envelopes first, and you’ll have Clarity on what you can use the money for if you first pay bills, and then start moving money around you’re going to damage the system.
You’re not you’re gonna be back basically back in the same trap that you were in before so step two is. Always allocate first then you pay your bills from your operating expenses okay before we move to the top style do you have like a handout or PDF that people can go to on your website or something that can follow because I’m trying to follow you and what’s happening is.
I’m reverting back to the old system of a unit. It’s just something that you have to train yourself. You’re basically training yourself to get rid of that old system to try and follow this news. That’s right. That’s right one of the challenges that people have is when I hear the system. They say makes sense, but it also feels like total overwhelm its so much to do that we go back to the way the old way well.
It’s not working the old weigh at least we’re familiar with it so I can actually share a tip to get started easily at the end of this this podcast by do have a free resource I have it the one I have the one sheet set up system, so you can follow this entire processes on one piece of paper. Plus I have some other resources notes and guidelines all available for free.
It’s on my website. It’s Mike McCalla with May being put on the show notes because it’s tough name is spelled. Yeah, but Mike McCallum click on resources, if someone’s listening on their smartphone or something you can also go to Mike motorbike that that was my nickname in high school, and if you go to Mike motorbike.
That’s easy to spell that will also bring you to my website. Go to the resources page. It’s all available therefore. Okay, so what’s the touch tab after the sequence Thursday to remove Temptation so you see we start allocating money out to these different accounts money starts accumulating in our profit account the owners comp account by the way is our why called lifestyle count.
That’s what we live off of our personal lives need to adjust to our regular compensation The Profit distribution is award an award or reward above and beyond our owners compensation so many piles up in the prophet account and also positive the tax account taxes aren’t due every day. A there do sometimes in a quarterly basis or their extracted from our paycheck if you have a different type of corporate set up, but there do periodically well if that money sits in that tax account and the prophet account at your bank.
It’ll only be a matter of time before comes very tempting to quote-unquote borrow that money, which is just another term for stealing. So we want to remove the temptation to steal from ourselves. This is when you find a second Bank a bank at you haven’t been worked with before a bank. That is not convenient.
Let me underline that it’s not an OT convenient. You don’t want on-line banking or starter checks or an ATM card you want to transfer the money from your profit account at your primary Bank over to the secondary Bank to sit and hold their because the goal is to have it out of sight and therefore out of mind and by doing this.
With your profit in your taxes the money stays available for when you need it in the future to pay your taxes or to do your profit distribution, but you’re not tempted on the day-to-day to steal from yourself and use it ok and the final step to fall sup. Fourth step is to get into a rhythm most businesses are very reactionary when it comes to their cash management when money comes in they panic and and pay all their bills or they say finally we have some money.
Let’s do X Y and Z in the money goes away very quickly they go through these Peaks and valleys well. There’s a simplified method that will bring automatic Financial balance to your business by getting into a rhythm. I called the 1025 Rule and I found for most businesses the 10th of the month and the 25th of the month.
Hence 10:25 are the ideal days to do this process. I mean is money comes in so say today is the 15th money comes in today. It just goes into the income accounts. It’s there the income account is a holding tray if you will for inbound cash on the 16th more money comes in maybe the 17th nothing the 18th is more money comes and the money piles up on the trigger day attend their 25th, and this case the 25th the money gets allocated based upon predetermined percentages from the income account.
To the prophet honors comp tax and operating expense account the income account goes back to 0 then starting on the 25th more income comes in it accumulates until the next triggered a which is a tenth money gets allocated income goes to zero and we keep repeating this process what this does is every 10th and 25th.
We look at our operating expenses, and we pay our bills from there now remember the Golden Rule if you can’t pay your bills. You can’t afford your bill. Those. We have to cut costs, or squeeze more value out of the nest. Sorry costs or I should say and freely is not over his hand cut costs and and squeeze more value out of our our existing Investments and increase our margins meaning dictate a premium for our services find ways to do that you pay money out of your operating Spence’s.
Then those bills that you pay out if you send them on the 10th will arrive by the 15th. That’s 1/2 your bills are due mid month when you do this again on the 25th. The bills will arrive by month, then usually when the other half are do so get you in a rhythm with your vendors, which is necessary.
You’re a vendor to your clients you want them to pay on time so way to pay on time, but the more powerful component is as the money accumulate San income account until the trigger day the tenor 25th and goes back to zero you start seeing what’s called Cash. Wave. Patterns you see how much your income normally Peaks out at every two weeks, so you’ll start seeing a rhythm when your cash flow wave is bigger or smaller than you expect that will trigger you to look into it because it’ll be obvious.
It’s different than expected, and that’s when you call your accountant or bookkeeper and really dive into the numbers. This is the most simple way. To manage and understand your cash flow without having to read a cash flow statement and this whole system profit first all those four steps all you have to do is log into your bank account you.
No longer need to read any of those Kang statements. You don’t need to do this through your accounting software and in fact. I encourage you not to don’t use your software. Don’t do is it do some spreadsheet the reason we do at your bank. Is it. It’s in your natural path. You’re already logging in there to check your bank balance if you set these accounts there and follow this process.
It’s your. Natural path you are forced to see this because every time you log in it’ll be there if you try to do so on a spreadsheet or somewhere else and you one day log into your bank accounts. You won’t see what’s going on in this spreadsheet. It’s an extra step that you may accidentally avoid or intentionally avoid but since it’s at the bank you see it therefore you do it.
Thanks again my for being on the show and discussing the prophet Frost formula. If people want to get the book and just learn more about it if they have questions. Where should be go while private forces everywhere so you can go to your local bookstore and get it there Barnes Nobles, or if you prefer online?
I’m an Amazon purchaser myself go to Amazon. They usually the best deal to Saipan profit first. You’ll find myself. You’ll find the book. You’ll find all the other books. I’ve written and I hope you enjoy it. Do have an audible version. Yeah, it’s an audible. It’s on Kindle. It’s been translated into multiple languages, so if English isn’t your native language and you?
Week Spanish or Portuguese or Afrikaans or or so many different languages, it’s out there too, okay, and any final thoughts. Yes, one final thought is we just went through this entire system, and I don’t know 19 minutes. I mean we went Hyper Speed through the system. This is the system that works.
We have 30,000 companies that are doing this, but there’s one challenge. I realize it’s overwhelming. I mean you just drank from a fire hose. Therefore its natural human behavior that when something overwhelms us to avoid it, so I don’t want you to avoid I want to get started. I found there’s the ultimate way of doing it.
There’s no excuse to do. I’m about to tell you today. Call your bank the current bank you work with your neighbor relationship of some sort either online or at the branch, but contact your existing Bank set up one checking account. There is the first step except the one checking account, and we’re going to RI nickname it profits.
That’s step one on should take you five minutes ten minutes. Most then one side account is setup transfer one percent of it every deposit that comes into your business. I’m saying literally if a thousand dollars comes in take 10 bucks putting your profit account you can run prisons off a thousand you can run your business off of 990 box.
You won’t feel the impact on running your business, but you will feel the impact as you see your profitability increase and once you start doing this once you get in the habit of allocating just one percent doesn’t matter of time before you go to to 410 and start growing your profitability and. I truly know this achieving levels of profits that you’ve only dreamed up.
It’s very doable, but you guys start now, and I suggest you start small. What’s your website again? It’s Mike McCalla Woodstock. Calm and again for those who like the shortcuts go to Mike motorbike goes the same site OK my thanks for being on the podcast. It’s been a joy. Thank you so much Robert.
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