Transforming Entrepreneurial Failure into Financial Success with Profit First
In this episode, we explore the real story behind the creation of Profit First. After selling his second multi–million-pound business, Mike Michalowicz appeared to be the picture of entrepreneurial success — until a single conversation with his accountant revealed he was completely broke. Years of impulsive spending, poor financial habits and mounting shame sent him into a spiral that many business owners quietly relate to.
But hitting rock bottom became the turning point. Mike rebuilt his life by rethinking the traditional formula of business finance and creating what we now know as Profit First — a simple yet transformative system that ensures entrepreneurs prioritise profit instead of treating it as whatever’s “left over”.
In this episode, you’ll hear how Mike’s hardest chapter became the foundation for a framework that has helped thousands of business owners escape financial chaos and build sustainable, profitable businesses.
Key Takeaways
- Mike’s collapse from wealth to crisis shows how quickly success can crumble without financial discipline.
- Profit First was born from the realisation that profit must be protected first, not hoped for later.
- Emotions drive far more financial decisions than spreadsheets — and that’s why structure matters.
- Shifting profit from an afterthought to a habit is the cornerstone of long-term stability.
- Rock bottom can be the catalyst for life-changing innovation.
- Implementing Profit First helps business owners avoid the traps that led to Mike’s downfall.
Transcript
Foreign.
Speaker A:Welcome to Profit first beyond the Book, a podcast that takes you beyond the book with Profit first brought to you by Tim Duncan and the rest of the Profit First Professionals UK and Ireland.
Speaker A:Hi, and welcome to this week's edition of our podcast, Profit first beyond the Book.
Speaker A:I'm Tim Seymour, co founder of Profit First Professionals UK and Ireland, master license holder, along with my business partner, Duncan Lloyd and business partner to Mike Michalowitz.
Speaker A:So I'm going to talk to you today about the birth of Profit First.
Speaker A:So I'm going to share some of Mike's story now.
Speaker A:If you've read Prophet first, the book, you may have already read this story, but it may be a while since you read the book.
Speaker A:You may have forgotten and it also, you may not have read the book yet.
Speaker A:So Mike McAnovitz was a very seemingly successful businessman.
Speaker A:He had built up and sold two multi million pound businesses.
Speaker A:And after he sold his second business and received one of his first installments, the checks for, for the, for the payments of the business, he bought three cars.
Speaker A:So I think one of them was a Dodge Viper, a car that he'd always wanted.
Speaker A:There was a Range Rover and a BMW.
Speaker A:He also rented a house in Hawaii for three to four weeks to take his family away because he thought, this is this new lifestyle, this is how we're going to live our life.
Speaker A:Now everything's changed, I've made it.
Speaker A:And Mike talks about a lot of this came from pure arrogance that he had built his companies up by sell, sell, sell, selling more and selling more and selling more.
Speaker A:He was very successful in the way that he was able to sell them, but he hadn't figured out how to look after the money that the business had produced for him.
Speaker A:So he went about quite quickly buying things.
Speaker A:So like I said, there was the, the rental property in Hawaii for, for a holiday, there were cars.
Speaker A:And then he became an angel investor and started to invest in lots of different companies without probably a lot of thought going into this.
Speaker A:He just started throwing money into these businesses and investing, thinking it was bound to work because he was a part of it.
Speaker A:And about a year later, it was actually on Valentine's Day, and Mike can remember having a phone conversation with his accountant Keith, who rang up to say, I've been looking at your accounts.
Speaker A:I've sourced everything out, got everything up together, and I've managed to keep your tax bill fairly low.
Speaker A:So your tax bill this year is $28,000.
Speaker A:So, so Mike says that when he heard that number, he had a sharp pain in his chest.
Speaker A:And I think it put the fear of God into him that maybe he was having a heart attack, maybe it was complete fear, maybe someone had stabbed him.
Speaker A:But it was that feeling of, oh my word, I've got a tax bill, it's $28,000 and I've not got that much money.
Speaker A:So Mike says that at that moment in time, he could probably get together $10,000 and if he did that, he had no idea how he was going to pay the mortgage on his house the next month.
Speaker A:So this was a really, really serious situation.
Speaker A:Having sold two multi million dollar businesses to suddenly find, you know, not so long after, a year or so after that, all the money's gone and the life he'd been living, you know, was, it was done.
Speaker A:There was no more money unless he started to make money again.
Speaker A:But, but the reality of this was such of failure that although seemingly from the outside, everybody thought he'd made it.
Speaker A:He told everyone, you know, this is how great this is, angel investor.
Speaker A:I'm going to be fantastic at this.
Speaker A:It's all going to work.
Speaker A:The reality was the money had gone.
Speaker A:So Mike went home and he sat around the, the dinner table with his family.
Speaker A:You know, it was Valentine's Day, a, a time for love.
Speaker A:And Mike is very open that there was a lot of love in this, in his family as well, of course, but he couldn't find the energy to hide the fact that he was in trouble.
Speaker A:And his wife Krista could tell straight away and sense something was wrong.
Speaker A:So she asked him what the matter was and Mike broke down, understandably so, given the circumstances.
Speaker A:He felt ashamed of himself and he felt a failure.
Speaker A:He explained that they were broke, things had gone wrong and there was no more money and he was worried about paying the mortgage and how he was going to cover the tax bill and what was going to happen.
Speaker A:At this point, his daughter jumped up and ran off upstairs to her bedroom.
Speaker A:Mike's instinct was upset, upset my daughter, which made him feel even worse, of course, as any father would.
Speaker A:But what happened was she walked back into the room with her piggy bank, she placed it on the table in front of her dad and said, it's okay, daddy, you can have my money.
Speaker A:Now, Mike has shared this with me before when we've spoke to Mike on podcasts and when we spoke to Mike personally when he's been over at our events at ProfitCon.
Speaker A:But he's always very clear with how he felt at that moment.
Speaker A:You know, immense pride, obviously.
Speaker A:So proud of his daughter at a young age to to come down with that reaction.
Speaker A:And that was the answer to all their problems.
Speaker A:But of course, it was also immense pain at the failure that he felt at that moment.
Speaker A:And.
Speaker A:And what followed was about six months of depression.
Speaker A:You know, I think when we are at our lowest point, we think the only way is up.
Speaker A:Sometimes you have to sink even lower before you can drag yourself back up.
Speaker A:This happened with Mike.
Speaker A:So six months or so of depression, quite a lot of alcohol flowing, feeling sorry for himself, feeling ashamed.
Speaker A:And as time went by, thoughts started to occur to him.
Speaker A:And as you.
Speaker A:As you know, if you've hit rock bottom yourself, and many of us have been in very low places in our life, so I'm sure a lot of us can understand the situation that Mike find himself in.
Speaker A:But when you are down there, there's a moment where a glimmer of light hits you.
Speaker A:The sky suddenly seems blue, the sun started to come out, and you can see a way, a way to move forward.
Speaker A:And with Mike, this was where he started to form the core principles of profit.
Speaker A:First, a lot of this comes from how he sees human behavior.
Speaker A:And.
Speaker A:And humans, you know, we don't.
Speaker A:We just don't act in a logical way.
Speaker A:We're quite illogical.
Speaker A:We make decisions based on emotion.
Speaker A:We.
Speaker A:We make spending decisions based on emotion because we have shiny object syndrome.
Speaker A:I think everybody out there, at some point in their life has spent money on something without really thinking, because the decision was made on pure emotion.
Speaker A:On, I really want that.
Speaker A:That's going to be great.
Speaker A:That's going to solve all my problems.
Speaker A:The reality is it probably didn't solve all your problems, but it might have been a nice thing to have at the time.
Speaker A:Well, with human nature being that way and with the way that we make decisions from an emotion, emotional at best, rather than a logical aspect.
Speaker A:Mike decided to reflect on this from a business perspective and thinking back about his own business and how he had grown businesses really quickly, how he had.
Speaker A:Howard realized how he could sell and how he could bring the money into the business, but how he hadn't been able to.
Speaker A:Hadn't been able to learn to keep hold of the money.
Speaker A:And the answer at the time to him was to keep selling, sell, sell, sell, and everything could be all right.
Speaker A:Once I make that next sell, everything will be okay.
Speaker A:The reality is you spend what you bring in.
Speaker A:So if the money is there and the money is coming into the business, you spend more.
Speaker A:So, and we spend through emotion, thinking.
Speaker A:So Mike was starting to think about what this looks like from an accounting Perspective and a financial perspective.
Speaker A:And he thought back to the conversations, you know, with, with an accountant.
Speaker A:And he spoke to lots of friends, of course, as well, who run businesses and had lots of conversations about how.
Speaker A:And we've spoke about this a lot before, of course, on this podcast how when you.
Speaker A:You get to the end of the year, submit your accounts to your accountant and they come back to you later on down the line and tell you that you've.
Speaker A:You've made a profit.
Speaker A:And here's your tax bill.
Speaker A:Very similar to Mike's conversation on Valentine's Day back, back all those years ago when Keith, his accountant, told him he had a $28,000 tax bill.
Speaker A:I have to remember to keep saying dollar, not pounds.
Speaker A:I'm so used to saying pounds, obviously.
Speaker A:So reflecting on this is Mike's story is in dollars.
Speaker A:I need to remember that.
Speaker A:So I'm doing well so far.
Speaker A:Bear with me.
Speaker A:So how can we not allow that to be an annual event?
Speaker A:Because that's what it feels like.
Speaker A:Going to see your accountant delivering the paperwork as it was back then, and then waiting for the bad news to come that you'd made a profit.
Speaker A:How can profit be bad news?
Speaker A:But it was because you knew that making a profit meant you had a tax bill and you didn't have the money saved up.
Speaker A:So Mike decided profit should become a habit and not an event.
Speaker A:But how could that happen?
Speaker A:How could profit become a habit?
Speaker A:And so it became quite clear when you think of the standard GAAP accounting formula of sales minus expenses equals profit, it became quite clear to Mike that that meant that profit came last and profit then becomes an afterthought.
Speaker A:So what would happen if we flipped the formula?
Speaker A:In essence, of course, the equation.
Speaker A:The result is still the same as a mathematical calculation, but the behavior aspect completely changes.
Speaker A:So he changed the formula to sales minus profit equals expenses.
Speaker A:Suddenly, expenses comes last, doesn't it?
Speaker A:And profit becomes just after sales.
Speaker A:So sales is first and foremost.
Speaker A:But as soon as the sales happen and the money comes into the business, you take your profit.
Speaker A:And that's where your prophet first came from and where it became born from.
Speaker A:All the pain that Mike went through after feeling such a failure, going through depression, drinking, etc, it's like a phoenix rising from the ashes.
Speaker A:Because from that he created prophet first.
Speaker A:And of course, then he wrote the book.
Speaker A:And once the book went over to the editors, and I think there might have been a team of editors at that time to go through the process and of course to check everything before it went out to be published one of the editors came back to Mike and said, this is fantastic.
Speaker A:Who do I speak to to guide me through this process?
Speaker A:And I said, well, what do you mean?
Speaker A:It's in the book.
Speaker A:And the editor said, yeah, he said, but he said, I need someone to show me how to do this.
Speaker A:I need someone to guide me, and most importantly, I need someone to hold me accountable to making this work, because otherwise I won't be able to keep up with the habit.
Speaker A:I won't be able to create that habit without some accountability.
Speaker A:And that was where Mike had the thought, okay, so we need to create some profit first professionals, some people that are certified in the art of profit first, people that go through training and have the license and the education and the knowledge to be able to share my intellectual property of profit first.
Speaker A:And so Profit first professionals was born not long after.
Speaker A:So the book, now profit First, I think it's had one.
Speaker A:Over 1.4 million people have bought the book and read the book.
Speaker A:It may be more because obviously there's, it's changing all the time and increasing.
Speaker A:But 1.4 million people, and many of those people take action on the book and look to implement profit first in their own business.
Speaker A:Most people need guidance, need accountability, and that's when they reach out to a profit first professional.
Speaker A:So Mike's dream of profit first was to eradicate entrepreneur poverty so that no entrepreneur that could build businesses, that could run businesses, would ever feel the way that he felt in that period of time, those few years ago.
Speaker A:This started on that Valentine's Day when he had to tell his family he was broke and his daughter put the piggy bank of coins in front of him.
Speaker A:And Mike talks about other things.
Speaker A:Of course, in the book, there's lots of stories of people that have been successful with profit first, but, but there's something that, that stood out to me having gone through implementing profit first in my business, you know, five, six years ago now, when the business, my accountancy business wasn't in a great state.
Speaker A:And I know I've shared this with you before, but Mike's referenced the feeling of looking at your profit assessment for the first time as how you feel when a bucket of ice cold water is tipped over your head.
Speaker A:So if you can remember, a few years ago, everybody did the ice bucket challenge and we all filmed ourselves having a bucket of ice cold water tipped over our heads and we put it onto, onto social media and then we tagged other people for them to have a go as well.
Speaker A:And it just, it seemed to go around everywhere.
Speaker A:So I'M sure you do remember that, but it's that feeling of wide awake.
Speaker A:Oh, my word.
Speaker A:Is this really where I'm at with my business?
Speaker A:What happens next?
Speaker A:And that's where the value comes from.
Speaker A:Profit first.
Speaker A:Because the next step is you changing your behavior, starting to take your profit first.
Speaker A:And it comes from profit becoming a habit rather than an event.
Speaker A:At the end of the year, when you're moving your money into a pot on a regular basis into a profit pot, you're not going to be in that situation when you get to the end of the year, you produce the accounts, you make a profit, and you think, but where is the profit?
Speaker A:You know, and you don't think to yourself, it's just an accounting profit because I've already put that money into my profit pot.
Speaker A:I know that money is there, or I know I've rewarded myself on a quarterly basis from that profit pot because I've taken my profit first.
Speaker A:You know that the money is in the tax account way before you have any idea of what the tax might be.
Speaker A:Of course, if you're an accountant and bookkeeper, you probably do know what the tax is going to be in advance.
Speaker A:And if you're putting the right percent away, you'll be able to monitor that on a regular basis and make sure that you've got your percentages right.
Speaker A:If too much money is going into the tax account, you might be able to reflect on that and think, can I put a couple of percent somewhere else?
Speaker A:You may be quite happy to build up a buffer and think, that's okay because there's more money going in.
Speaker A:There'll be some there for next year as well.
Speaker A:You're able to pay yourself the right amount of money.
Speaker A:You're able to with the profit first.
Speaker A:You can have a look at how much you need to pay yourself from your business at this moment in time.
Speaker A:What do I need to pay to cover all of my personal commitments?
Speaker A:Am I paying myself that amount regularly?
Speaker A:If you're not, then you need to work out what your percentages are to understand how you can pay yourself the right amount each month.
Speaker A:That's kind of your first target when you start with profit first is to be able to pay yourself the amount of money that you need to look after your personal financial commitments.
Speaker A:Because without doing that, you're going to create a world of debt money.
Speaker A:Nobody wants that for you.
Speaker A:After you've worked out and you have started to pay yourself the right amount each month to cover those personal commitments, then you need to look at the percentages Again, what is it you would like to earn on a monthly basis?
Speaker A:What would make you comfortable?
Speaker A:And so that's your next target.
Speaker A:Now you're aiming towards achieving that for your owner's PayPal.
Speaker A:How can I get to this point?
Speaker A:I know I'll be comfortable, I'll better cover all my personal commitments easily and I'll have an excess amount of money where I can start to strategize on what I'm going to use that money for.
Speaker A:It may be additional monthly spending, but it also, you know, going out, socializing, that kind of thing on your hobbies.
Speaker A:But it also might be going towards a holiday.
Speaker A:There might be an element going towards a house, there might be an element going towards children's school fees, university fees, et cetera, et cetera.
Speaker A:There's so many things we could discuss from.
Speaker A:Once you've calculated that figure and you get to that figure, and so you're starting to live a much fuller life, a much more enjoyable life, much more relaxed life from a financial perspective.
Speaker A:Now you can think about what your long term objectives and outcomes are.
Speaker A:This is where we think of the, the dream holiday, the holiday of a lifetime, the dream house, paying off your mortgage, buying your first house, putting your children into private school, paying for their university fee.
Speaker A:These higher level outcomes that we're working hard to achieve.
Speaker A:Being free from your business, being able to employ other people so that you can step away and just dip in and out of your business.
Speaker A:Maybe it's a boat that you want to keep down in the harbor, maybe you want to sell the Mediterranean every summer.
Speaker A:You know, whatever that outcome is, that's the next place to start working out how you can achieve that from the business.
Speaker A:So the percentages, we need to start thinking about how we can tweak those percentages again.
Speaker A:How can we move the dial up?
Speaker A:How can we make sure all of this money that we're bringing into our business is going in the right areas so that we can achieve our outcomes and our objectives?
Speaker A:And in the meantime, you're still covering all of your expenses for the business?
Speaker A:Of course, because what we've done is we've made sure that the expenses are at the right level.
Speaker A:We've made sure we're not paying for things we don't need.
Speaker A:We've made sure that the payments we're making are investments for a reason and for a purpose.
Speaker A:And they're giving us a return back on what we're investing.
Speaker A:So I wanted to share that with you today, but I wanted to really kind of focus on Mike's story and, and how Mike, you know, kind of came up with a concept of profit first.
Speaker A:From a really dark place to a glimmer of light shining through with the sun coming through and the blue sky, to that light bulb of profit first and what it can do and how he could help people.
Speaker A:His mission since that moment has been to eradicate entrepreneurial poverty.
Speaker A:There's.
Speaker A:There's.
Speaker A:There's one of his.
Speaker A:So when Mike was blase with his money and he was being an angel investor, there is one business that, that did make it.
Speaker A:The other businesses, unfortunately, didn't.
Speaker A:Didn't get through, but there's one.
Speaker A:And the guy who runs it, his name is Paul Scheider, I believe.
Speaker A:I'm not sure if I've pronounced that right.
Speaker A:But he has survived and he's managed to keep going with his business, and I think he's thriving now, having then implemented profit first into his business, of course, with Mike's help and support.
Speaker A:And he has this theory when he needs, or thinks he needs to buy something for the business, he says to himself, just one more day.
Speaker A:And Mike went on a trip to.
Speaker A:To visit him, and he picked him up from the airport.
Speaker A:And when he was at the airport, he said, oh, I need to go to the electrical shore to pick up some electrical store to pick up some goods for the office.
Speaker A:Mike said, okay.
Speaker A:And I think it was the.
Speaker A:The business Trade Depot, something like that.
Speaker A:And he.
Speaker A:Or Home Depot.
Speaker A:Anyway, he drove straight past.
Speaker A:They went.
Speaker A:Next day, they were going off visiting somewhere else and having a little, you know, look around.
Speaker A:And he went past the store again and didn't go in.
Speaker A:And Mike said to Paul, are you.
Speaker A:You're not going in to get the electrical goods you need for the office?
Speaker A:And he smiled and said, just one more day.
Speaker A:And this continued.
Speaker A:And Mike stayed with him for a week.
Speaker A:And at the end of the week, as they were driving to the airport, they went past the store again.
Speaker A:And Mike said to Paul, why?
Speaker A:I don't understand.
Speaker A:You told me at the beginning of the week that you needed to get some electrical goods.
Speaker A:But every time I've asked and every time we've gone by, you've said just one more day.
Speaker A:And Paul said, that's what I do.
Speaker A:And he said, if I don't need it today, I probably don't need it tomorrow.
Speaker A:And I've now come to the conclusion after a week that actually I don't need it at all and I can manage without it.
Speaker A:And this is so invaluable as a story, as A As a true story of how Profit first recreates your mindset around money, the.
Speaker A:The emotional feeling of I want this stuff for the office, I'll go and get it.
Speaker A:Boom, done to actually, I'm going to think about this.
Speaker A:I'm going to give myself another day because I need to think about where it fits into my operating expenses, percentages.
Speaker A:I need to think about whether I can really afford it and I need to think about whether I really need it and what it's actually going to do for me.
Speaker A:Is it going to serve a purpose that I really need?
Speaker A:And I think Paul came to the conclusion that he didn't actually need it.
Speaker A:It just was a nice to have rather than really need to have it so that I can do something with it and it can help me bring revenue into the business.
Speaker A:So there's, there's a, an episode here on.
Speaker A:Mainly based around Mike's story with an element of obviously adding in some of the Profit first knowledge from my perspective.
Speaker A:But I really wanted to focus on Mike and share how Mike came about in his world of business to create Profit first, briefly about what that means and how it works.
Speaker A:And also story from one of Mike's business friends that he's worked with and he invested into.
Speaker A:I hope you've enjoyed that.
Speaker A:It's.
Speaker A:It's a different kind of episode again and I'm trying to change things up so that we all get to learn different things from our podcast.
Speaker A:But I just want to say thank you very much for joining me and of course, if you're interested in learning more, if you're a business owner that would like some help from a Profit first professional because you want to implement Profit first into your business, go to our website, profit first uk.co.uk you can find a tab there for find a certified PFP you can fill in.
Speaker A:I think there's about four or five questions.
Speaker A:Give us a little bit of information on what you're looking for and then we can put you in contact with one of our certified Profit first professionals who's best suited to serve you and to help you and to give you some information.
Speaker A:If you're an accountant, a bookkeeper or a financial coach and you want to learn more about becoming a Profit first professional and using the Profit first strategies with your clients, head to profit first uk.co.uk there's, there's a link to go to the wait list where you can fill out a form and we can schedule a call to have a chat and see where you're at.
Speaker A:See if you're suitable and you're a fit to come and join us at Profit First Professionals.
Speaker A:Or maybe you might be more of a fit to come and join us in the Profit first pathway, which is a free group.
Speaker A:And in the Profit First Pathway, we introduce you to the concepts of Profit First.
Speaker A:We have various challenges that we do throughout the year and we also have calls where you can come and join.
Speaker A:You can come and meet other people, you can chat to some of the certified Profit professionals that are in our world.
Speaker A:So if you're interested in that as your first step into finding out more, please go to Facebook, type in the Profit first pathway, that's the Profit first pathway into the search bar and you will be able to request to join the Profit First Pathway with us.
Speaker A:You'll have to answer three or four simple questions, agree to the rules and we'll let you in.
Speaker A:And then we can get to know you in a much more kind of relaxed atmosphere.
Speaker A:You can just sit and you can sit and lurk if you want to.
Speaker A:If you're a lurker and you want to be in the background, join the Facebook Group.
Speaker A:Just sit back and just watch what goes on.
Speaker A:And we share lots of things with you.
Speaker A:And if you want to know where you're at from a Profit first perspective right now, you can take our Profit first assessment.
Speaker A:So this is in Score app, so you just need to type into your search bar profit first hyphen assessment.scoreapp.com and you will have access to this quiz.
Speaker A:It gives you an immediate report as soon as you've answered.
Speaker A:However, I think it's about 20 questions, fairly simple.
Speaker A:You should better do this in about two, two, probably two or three minutes and you'll get a Profit first assessment straight there for you at the end of that.
Speaker A:So that's profit hyphen first hyphen assessment.scoreapp.com thank you very much for joining me today.
Speaker A:I've really enjoyed your company and I hope listening about Mike's story has reinvigorated you.
Speaker A:If you know about Profit first and if you don't know about Profit first, hopefully it's given you some information that you can take away and think about finding out more.
Speaker A:Have a great week.
Speaker A:Thank you for joining us on our podcast today.
Speaker A:Profit first beyond the book was brought to you by the Profit First Professionals UK and Ireland team.
Speaker A:If you'd like to find out more about Profit first or becoming a Profit first professional, head to our website, profitfirstuk.co.uk.
