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How do you make more profit as a screen printer? How can print shops make more profit? Implement the profit first system.
The custom apparel industry is extremely competitive. It has low margins and a challenging production process that makes cash flow management very difficult.
That's why Mike Michalowicz's Profit First is so powerful for screen printers and other custom decorators. It's a brilliantly simple way to change your behavior so you automatically generate profits in your business.
We invited Mike to speak at PrintHustlers Conf 2019 in front of 200+ print shops from across the world. Now, you can watch his entire presentation right here for free:
The Small Business Administration conducted a nationwide study of entrepreneurs and small businesses.
Of the 23 million small businesses in the United States (defined as a business of $25M in revenue or less), 83% are surviving check-to-check.
They don’t have enough to pay rent, payroll, or the owners unless they make sales today. Maybe one day, they will make that big sale and the profits will "magically" appear. Except...it never does.
This is a dangerous situation.
A serial entrepreneur, Mike had painted himself into a corner. Sure, revenue was growing...but profits weren't. He was going deep into debt even as the business "grew." Things got so bad that his accountant advised him to declare personal bankruptcy.
One year on Valentine’s Day, Mike had to go home to his family to tell them they were going to lose everything – their house, their cars, their possessions. Mike didn't declare bankruptcy. He struggled with an aggressive IRS repayment plan and credit card debt.
He spent two years in a deep depression until a late-night infomercial birthed an epiphany.
“If you can continue to do exactly what you do, but change the system to make that behavior to your benefit, then you can have success in making a change.”
Axioms are wonderfully dangerous pieces of "social wisdom." They're widely accepted statements with no proof. The biggest one in business is this: profit comes at the end of the year as a single bottom-line event.
Here's what makes this so dangerous, according to Mike: “We’re all familiar with profit as ‘bottom-line’ and ‘year-end’ events. What’s left over is profit. That makes logical sense. But it doesn’t make behavioral sense. It is wired into humanity that when something comes first, it’s important - but when something comes last, it’s insignificant.”
Why does profit come last? It has to do with the way that we conceive of profit – just because of the equation we use to calculate it!
The OLD way to think about profit:
Sales - Expenses = Profit
The NEW way to think about profit:
Sales - Profit = Expenses
Why are so many business owners living hand-to-mouth? Why are so many entrepreneurs struggling to make any profit at all? The answer is obvious: they were tricked by an axiom.
They’ve been fooled by the process. They think that profit is something that comes later. They believe there's some magic formula to pricing or production that will make them profitable.
The truth is this: you don't need to change your pricing. You don't need to upend production. You need to change the structure of how cash flows through your business.
Profit has to become part of your top-line equation – not the "destination" of your business. Profit is the reason you took the risk to start a business in the first place!
When you run the "Sales - Profit = Expenses" calculation, you might notice that your budget for expenses has suddenly shrunk. That little remainder...expenses...is all you have to run your business off!
"But that’s impossible! I could never run my business with less than I do now," you think.
Mike has a super simple rebuttal to that idea. Think about a tube of toothpaste that's on its last legs.
There's a smidge of toothpaste left, just enough for one brushing. How hard will you work to get the last bit of toothpaste out of the tube? You'll probably even use less toothpaste and try to get a few more uses out of it just to avoid going to the store to buy a new tube.
Compare this behavior to when you've just bought a new tube of toothpaste: you're slathering the toothpaste on. You're wanton with the toothpaste, covering your toothbrush, drowning it in goopy fluoride – maybe even dropping some of it straight into the sink and shrugging it off.
When you believe you have a lot, you will behave like you have a lot. When you believe you have a little, you will behave like you have a little.
This is the fundamental thinking behind Parkinson's Law. It's a powerful adage: “work expands to fill the time allocated.” The same logic applies to expenses. Expenses expand to fill the budget allocated. So...allocate less.
This system forces you to act like your business is in the "empty tube" phase. You're forced to make do with less.
As you challenge your business to cut costs, you’ll introduce forced frugality. Your behavior around operating expenses will change. You’ll become innovative, frugal, and persistent. And your employees will begin to look for ways to improve their own productivity.
You can set up a series of bank accounts to structure profitability so that it’s an automated part of your business.
The five major accounts in the Profit First method are:
Here's how the flow of cash works in the profit first system. It travels from your INCOME account down through each account. You pay a percentage of every sale into each account. You always put aside a profit, you always pay your own salary, you always pay the government, and you are always conscious of ways to become more innovative and lean with your operating expenses – structurally.
"Profit isn't an event. It's a habit. It doesn't come at once, but we're trained to think that way."
But how do you avoid stealing from your profit account? Can't you just take some money from the PROFIT account any time you get a little nervous about cash flow?
Ah – true, you can steal from yourself. It's easy. But here's how Mike suggests you fix that.
Set up a second bank with two accounts. Pick a bank that isn't in your home town and isn't easily accessible.
You create two accounts, one called PROFIT HOLD and one called TAX HOLD. Then, disburse profits and taxes on a regular schedule to those accounts.
The goal here is to make this bank one that’s far away, inconvenient, or otherwise a major hassle to get to. You want to create a “walk of shame” for yourself any time you steal profit from yourself.
This will get some strange reactions from banks...they’re all about convenience, accessibility, online banking...but it’s still possible to find an inconvenient bank! You can even ask the branch manager to only distribute funds with a check they personally have to sign. Set up a way to slap cold water on yourself when you want to reach into your PROFIT account – create the PROFIT HOLD account.
One of the worst things you can do as a business owner is use your bank balance as a vanity metric for the health of your business.
You check your bank account balance on Monday and see there's only a few hundred and panic. Then you check it on Wednesday and see thousands – so you feel a sense of relief. Suddenly, the tube of toothpaste is full again!
But that's not a measure of the health of your business!
So how do you actually keep track of cash if your accounts are "hidden" from yourself?
Simple. Check your accounts only on the 10th and 25th of every month.
You can set a simple guideline balance (you'll have to determine that, likely an average of your past 90 days' balances) that will determine whether you actually need to take action.
Remember: sales volume varies, so your accounts will vary. You want to create a cash management system that's simple enough for you to understand at a glance – and automated enough that you can't screw it up because you overspend when you see a big balance.
This is an abrupt shift. It’s a huge change.
Mike is candid about this.
Trying to implement profit first all at once is like trying to run a marathon with no training. “Don’t start running three times a week if you’ve never lifted a finger before!” Instead of raising the bar...what if we lowered the bar?
Start with two steps:
You will start with $10. Then $100. Then $1,000. The PROFIT account will grow.
Then – the best part. It's time to reward yourself. Take a profit dividend (not the entire PROFIT account!). Embrace the same discipline that big companies have with their shareholders and quarterly dividends.
Celebrate your success! You turned a real profit.
“What comes last gets ignored. What comes first gets done. Always put your profit first.”
We are so thankful that Mike Michalowicz joined us at PrintHustlers Conf 2019.
Mike has written numerous powerful books about business and entrepreneurship that cover much more than just profitability. You can purchase Profit First and Mike's other books on his website – as well as download resources, connect with profit first certified accountants and experts (like Mark Coudray), watch valuable video content and much more.
PrintHustlers Conf 2019 was an incredible gathering of elite print shops held in downtown Chicago during July. You can read a recap of the festivities here – it was a stunning event that connected custom apparel industry experts from across the world for two days of intense, candid, and actionable talks.
Join us for PrintHustlers Conf 2020 next July – get your tickets today!