We wouldn’t even think of taking profits first in our business. It’s not what we are taught! In fact, we learn the opposite in most business classes: Sales minus expenses equals profits. There is a better way to run your business! In fact, the human brain is wired for a different formula. Ready?
The Profit First Formula will change your esthetician business forever. We used to call this concept “pay yourself first.” You will change the way you run your business and how you look at money by taking profits first.
Since the Beauty Business Summit that took place a couple of months ago, there’s been a ton of buzz around the Profit First Formula in our industry. In fact, my dear friend and colleague, Malinda McHenry, CEO of The Esthetic Professor talked about the profit first formula on stage.
You might think talking spreadsheets and numbers would put everyone to sleep but Malinda’s sense of humor and teaching style had spa owners totally engaged! When we broke for lunch after the talk, over 30 attendees were still writing on their worksheets.
That’s the moment I realized that the attendees “got it!” It was so great to see these spa owners with their head down, willing to do the work that it takes to run a successful business.
What’s the Profit First Formula?
Traditionally, business owners are taught “Sales – Expenses = Profits.” We’re used to generating sales, subtracting the expenses, and then maybe we’ll buy ourselves a sandwich with what’s left. If we’re lucky.
When we consider “profit” as whatever is left after all the expenses are paid, we create the mindset of not valuing ourselves enough. We are essentially putting ourselves last and making ourselves insignificant.
Yikes!
The old formula “Sales – Expenses = Profits” (which is taught in every business class) is flawed. When we see the money in our bank accounts, we spend more. “Oh, I have money to buy a new piece of equipment or more products, or this shiny new…” sounds familiar? We see what we have money in our bank accounts – then we spend it. We consume what we see… that’s human nature!
Instead, Michael Michalowicz wants us to flip that equation to “Sales – Profits = Expenses.”
Boom! As small business owners, many of us are already fighting an uphill battle when it comes to self-worth issues. The new formula completely changes our mindset because it puts paying ourselves first, so we can put us and our families first.
It may take a while to adjust to this new way of running a business. But when it sinks in, you will see very clearly the expenses you need to cut so you can become more profitable. Let’s face it, many of us in this industry tend to overspend on unnecessary products and equipment we don’t use. So, this formula will help keep you in check.
In fact, I believe in this concept so much that we did a special class on the Profit First Formula in the Esthetician Inner Circle. It’s exciting to see so many members are implementing the formula and having a new direction for their businesses! Members are having fun opening accounts and sharing their wins.
Applying the Profit First Formula To Your Beauty Business
To get started, I recommend getting the book Profit First. I have the audio book that Mike narrated — and oh boy, he’s hilarious! I love a good sense of humor, especially when talking numbers.
“When in doubt, open an account” — I love it! It’s funny but so true.
In one of my blog posts last month, I talked about putting gift card sales into a separate account (escrow) because that money is essentially not yours yet — it’s ghost money.
Opening separate bank accounts helps you manage your finances and prevents you from stealing.
I have had separate accounts for my business years before I read Mike’s book. Since reading the book,
I have opened up two more accounts. Here’s how you can get started:
- Open a checking account into which you deposit all the money from your business.
- Create separate operating expenses account and owner’s pay account at one bank.
- Set up two savings accounts at a different bank. One for taxes and the other for profits. Setting up at a different bank prevents you from being tempted to borrow from these accounts to cover expenses. Trust me, this works.
- Allocate 1% of all the money that comes into your business to the “profit” account and increase that amount over time. Start out small to get used to the concept.
As you can see, the Profit First Formula is not about delving into the numbers. Instead, it focuses on changing your mindset and behaviors so you can put paying yourself first.
While I have thought about writing an in-depth article on the Profit First Formula, I realized that changing our mindset and behaviors goes beyond reading a blog post. You may need on-going support to help you implement the strategy and stay accountable.
If you want to make the most of the Profit First Formula — read the book and hop onto Esthetician Inner Circle to get the support and mentoring you need to make the Formula work for you and your business.