019 Paying Yourself - Mike Michalowicz

05/24/16 • 23 min

Entrepreneur, Business, Profit, Investing, Sales

Summary

Practically every financial advisor will tell you that if you want to build a healthy nest egg, it’s important to “pay yourself first” as soon as you receive your paycheck. That’s an important principle we’ll discuss in our Thought of the Day. Later in today’s interview, well-known entrepreneur Mike Michalowicz shares his painful discovery that paying yourself first as a business owner is just as important if you want to have a healthy company. He explains why and shares how to do so. That and more on today’s show.

Bob's Thought of the Day

If you’ve ever flown on an airplane, you’ve heard the pre-flight announcement advising that in the event of a loss of cabin pressure, you should put on your own oxygen mask before placing it on your child. This seems counter-intuitive for any parent; what parent wouldn’t want to help their child first? Yet those instructions exist for a reason: you can only help your child when you yourself can breathe; you can only help others when you yourself are healthy.
Any respected financial planning expert would recommend you follow the same principle for your personal finances: as soon as you receive your paycheck, take out the amount you’ve chosen to save or invest before you do anything else. Many experts advise making this an automatic transfer. In fact, that’s the meaning of the word “automatic” in David Bach’s best-selling investment book The Automatic Millionaire.
It’s easy to believe that we’ll take what’s left after paying the rest of our bills and invest it. But more often than not, we don’t follow through with this. If we pay ourselves first, we can learn to adjust our spending.
The principle of paying yourself first works not only in finances, but in other areas of life as well. For instance, respecting others begins with a healthy amount of self-respect. Those who value others genuinely value themselves. This does not contradict the Go-Giver philosophy of focusing on bringing value to others; it simply means that in order to give to others, we must have value to give.
Be sure and have your own act together and there’s a much greater chance that you’ll have more to give others, including the most valuable gift of all ... yourself.

Interview with Mike Michalowicz

Profitability brings stability. If you want to continue serving customers and making a difference through your company or business, you must be financially sustainable.
83% of small businesses (defined as those making $25 million or less in revenue) are surviving week to week. The result is that if they don’t receive a deposit this week, they can’t make payroll or pay expenses.
Mike shares a personal story about coming clean to his family about his financial failure as a younger man. A turning point was when his 9-year-old daughter ran from the room, brought back her piggy bank, and volunteered to help the family.
Profit is not an event; it must become a habit. Every transaction, every moment, and every single thing about your business must facilitate profit. Profit is the result of a series of small wins that add up over time. It’s not one giant event that happens at some point down the road.
The most important question is not “How big is your business?” Rather, it’s “How healthy is your business?” There is a culture of bravado that puts the emphasis on the size of your company rather than its health. However, rapid growth without financial growth will kill your company.
The Profit First philosophy emphasizes flipping the core accounting formula that everyone knows: sales minus expenses = profit. This sounds logical, but it doesn’t work behaviorally. The reason is that in this formula, profit falls last. When something comes last, it gets ignored.
We must flip this formula to this: sales minus profit = expenses. Whenever sales are generated, take a predetermined amount that you want to set aside as profit and put it in a separate checking account. When you take out profit first, you are inherently forcing yourself to become more innovative, find new ways to extract more value from your business with less expenses, become more frugal, and reverse-engineer your profit to make it permanent.

Interview Links

Profit First by Mike Michalowicz

The Pumpkin Plan by Mike Michalowicz

The Toilet Paper Entrepreneur by Mike Michalowicz

MikeMichalowicz.com

Entrepreneur, Business, Profit, Investing, Sales

Summary

Bob's Thought of the Day

If you’ve ever flown on an airplane, you’ve heard the pre-flight announcement advising that in the event of a loss of cabin pressure, you should put on your own oxygen mask before placing it on your child. This seems counter-intuitive for any parent; what parent wouldn’t want to help their child first? Yet those instructions exist for a reason: you can only help your child when you yourself can breathe; you can only help others when you yourself are healthy.
Any respected financial planning expert would recommend you follow the same principle for your personal finances: as soon as you receive your paycheck, take out the amount you’ve chosen to save or invest before you do anything else. Many experts advise making this an automatic transfer. In fact, that’s the meaning of the word “automatic” in David Bach’s best-selling investment book The Automatic Millionaire.
It’s easy to believe that we’ll take what’s left after paying the rest of our bills and invest it. But more often than not, we don’t follow through with this. If we pay ourselves first, we can learn to adjust our spending.
The principle of paying yourself first works not only in finances, but in other areas of life as well. For instance, respecting others begins with a healthy amount of self-respect. Those who value others genuinely value themselves. This does not contradict the Go-Giver philosophy of focusing on bringing value to others; it simply means that in order to give to others, we must have value to give.
Be sure and have your own act together and there’s a much greater chance that you’ll have more to give others, including the most valuable gift of all ... yourself.

Interview with Mike Michalowicz

Profitability brings stability. If you want to continue serving customers and making a difference through your company or business, you must be financially sustainable.
83% of small businesses (defined as those making $25 million or less in revenue) are surviving week to week. The result is that if they don’t receive a deposit this week, they can’t make payroll or pay expenses.
Mike shares a personal story about coming clean to his family about his financial failure as a younger man. A turning point was when his 9-year-old daughter ran from the room, brought back her piggy bank, and volunteered to help the family.
Profit is not an event; it must become a habit. Every transaction, every moment, and every single thing about your business must facilitate profit. Profit is the result of a series of small wins that add up over time. It’s not one giant event that happens at some point down the road.
The most important question is not “How big is your business?” Rather, it’s “How healthy is your business?” There is a culture of bravado that puts the emphasis on the size of your company rather than its health. However, rapid growth without financial growth will kill your company.
The Profit First philosophy emphasizes flipping the core accounting formula that everyone knows: sales minus expenses = profit. This sounds logical, but it doesn’t work behaviorally. The reason is that in this formula, profit falls last. When something comes last, it gets ignored.
We must flip this formula to this: sales minus profit = expenses. Whenever sales are generated, take a predetermined amount that you want to set aside as profit and put it in a separate checking account. When you take out profit first, you are inherently forcing yourself to become more innovative, find new ways to extract more value from your business with less expenses, become more frugal, and reverse-engineer your profit to make it permanent.

Interview Links

Profit First by Mike Michalowicz

The Pumpkin Plan by Mike Michalowicz

The Toilet Paper Entrepreneur by Mike Michalowicz

MikeMichalowicz.com

Previous Episode

018 The Sleep Revolution - Arianna Huffington

Sleep, Rest, Priorities, Health, Habits

Summary

Sleep is a vital part of our lives, yet it might not seem so based on the way we treat it. Proper sleep has amazing benefits When we ignore this, the consequences can be disastrous. We’ll discuss that in our Thought of the Day. Later, in today’s interview, we’ll chat with media mogul Arianna Huffington, who is on a mission to impact the way we think about sleep through her recent bestseller The Sleep Revolution: Transforming Your Life, One Night at a Time. That and more on today’s show.

Bob's Thought of the Day

Imagine that you’re sitting at your desk at mid-morning, working on a project, and you feel yourself nodding off. But you can’t: you have work to do and deadlines to meet. It’s an uncomfortable feeling.
Imagine that you’re driving, and all of a sudden you can’t see the road clearly. Your mind and your vehicle begin to drift as you struggle to stay awake. You catch yourself just in time and avoid putting yourself and others in danger on the highway.
Imagine that you’re talking with a friend, family member, or business associate. They say or do something that is a bit annoying, but would typically not be a big deal. However, in this case you snap and say something hurtful that damages the relationship.
There is an excellent chance that in each of these situations, the problem was caused by a lack of sleep.
According to the National Sleep Foundation, 50-70 million people in the U.S. have some type of sleep disorder. Teens are especially sleep-deprived as a result of their screen time, natural body clocks that keep them up later, and school that might start too early. But many adults even without sleep disorders don’t get nearly enough sleep, either. Why? We simply don’t value it. For too long, we have thought of sleep as a necessary evil that limits our productivity. But nothing could be further from the truth.
We tend to put sleep at the bottom of our priority list. It’s the first thing to go when we’re feeling pressured. Yet, when we have both the right quality and quantity of sleep, we receive amazing benefits, including improved health, a stronger immune system, improved mood, and a boost in productivity.
Until recently, Bob thought of sleep as a waste of time. Now, he believes the opposite. His wake-up call was inspired by Arianna Huffington’s own wake-up call regarding sleep. She experienced a health crisis that led her to take sleep much more seriously. She made changes that improved her quality of life, and she is now helping countless others recognize the value of sleep.

Interview with Arianna Huffington

During the Industrial Revolution, we began to treat human beings like machines. Now the lack of sleep is a worldwide problem in industrialized nations. Sleep deprivation makes you more moody and reactive, less joyful, and more prone to sickness and disease. Lack of sleep also contributes to depression and anxiety.
Sleep is not optional or negotiable. You must have 7-9 hours of sleep per night (the specific amount will vary according to the individual) unless you have a genetic mutation.
After the health crisis she recounts in her book The Sleep Revolution, Arianna changed her habits and began to get more sleep. She started by adding 30 minutes of sleep per night.
How do you begin changing your habits? First, you have to change your mind about the importance of sleep. Then you’ll be in a position to change your habits. It’s helpful to create a “transition ritual.” We already do this with children when we help get them ready for bed. Choose a time to turn off your devices and create a clear dividing point between your day life and your sleep time. (Arianna only reads physical books before bedtime.) You can incorporate elements such as taking a hot bath or changing into clothes that you only wear for sleeping. Those send a signal to your brain that it’s time to sleep.
A standard “rite of passage” for college students is pulling an all-nighter before an exam. But in terms of what the lack of sleep does to your mind, it’s similar to getting drunk. You will perform much better on an exam if you get the proper amount of sleep.
All this begs the question, “Arianna, wouldn’t you have been less successful in your career if you had spent less time working, and more time sleeping?” Her answer is “no” -- she would have been even more successful if she had gotten more rest. A lack of sleep prevents you from making good decisions. She cites the example of Bill Clinton, who once said, "Every important mistake I've made in my life, I've made because I was too tired."

Interview Links

The Sleep Revolution by Arianna Huffington

Next Episode

020 Personal and Leadership Values - Howard Behar

Leadership, People, Serving, Business, Values

Summary

Everything we think, feel, say, and do—as human beings, as entrepreneurs, as salespeople, and as leaders—typically springs from our values. We’ll discuss that in our Thought of the Day. And later, in today’s interview, former President of Starbucks North America, Howard Behar, will share with us several powerful leadership principles for his recently-released book, The Magic Cup. That and more on today’s show.

Bob's Thought of the Day

What we truly value—not what we say we value but what we actually value—drives our behavior.
For example, a person may say they value spending lots of quality and - just as importantly - quantity time with their family. But if they consistently work an unreasonable amount of hours and ignore their family, then family time is not truly a high value to them ... at least, not as a high a value as spending time at work is. There’s no judgment involved here. It’s simply part of human nature: our true values are revealed in our actions, not our words.
Likewise, if someone says they value speaking positively about others and uplifting them, yet they are constantly gossiping, then positive speech is not a high value for them ... at least, not as high a value as gossiping. This principle applies to every area of your life: We do what we most value.
Here’s an exercise that will be helpful. Write down these 8 areas, or “values” of life: financial, physical, spiritual, mental, emotional, social, relational, charitable. (You can add additional areas if needed.) Underneath each area, list various actions that indicate how a person would fulfill them. Then rank these overall values according to how important each one is to you.
For example, under “physical” you might list these actions: healthy lifestyle, exercise, healthy diet, walking instead of driving whenever possible, getting 8 hours of sleep per night, eating a non-healthy dessert once a week as a reward, or whatever else is important to you. Your list of actions under “physical” might be different.
Over the next two weeks, check your actions against what you’ve written as the indicators under each value area. Do your actual actions match what you say are indicators of each value? This is not a matter of judgment, or the need to feel badly if you’re not on track. It’s just a matter of awareness. Once you’re aware that you’re not where you want to be, then you can take steps to change it ... if you value changing more than you value not changing.

Interview with Howard Behar

Howard’s new book, The Magic Cup, lists 11 “virtues of the magic cup.” These are: responsibility, curiosity, cooperation, trust, truth, hope, forgiveness, focus, stewardship, courage, and connection. These are values that one needs to be a successful leader.
On the value of cooperation: Howard received a note from a barista who worked at Starbucks. She said it’s one of the only places she’s ever worked where everyone was “in it together.” This doesn’t mean that everyone in leadership at Starbucks always agreed; it meant they worked together to try and achieve the organization’s goals and mission, and tried to help others achieve their personal goals along the way. It’s about treating others with respect and dignity, listening to other people, and working out your ideas together.
Collaboration, partnership, connection, and communication are important aspects of cooperation. If you’re married or have a significant other, the most important thing you can do is listen. You must listen with both your ears and your eyes.
On the value of forgiveness: We don’t often hear this value mentioned in leadership books and teaching. It’s important on both sides of the aisle. A leader has to look at his/her own actions, be in tune with where they are, and be willing to listen. They have to be the first one to say, “Please forgive me for that mistake.” On the other side, they also have to be willing to forgive others. But we often struggle with forgiving others and saying, “It’s OK, we all make mistakes. Let me help you.” This is a key quality of a leader because we value others being vulnerable. If you can’t forgive others, you’re not authentic and vulnerable.
The figurative “Holy Grail” in the book is the “Treasure Beyond All Price.” It’s not money, position, or power ... it’s the understanding that we’re all here to serve in one way or another. If you could put one thing on everyone’s business card, it should be a “server of others.” At the end of the day, none of us can accomplish anything without others. There’s only one thing that makes you life meaningful and whole: serving others.
Serving others is not about shoving a cup of coffee across the counter. It’s understanding where that person is in front of you. Howard used to tell Starbucks employees th...