It’s a common story.
Day One: You get paid.
Day Two: All your money is gone due to payments made for bills and debt.
It’s a problem for both employees and freelancers. We all can’t seem to save, let alone enjoy, the fruits of our labor. This creates even more stress to the freelancer whose income is already irregular and fluctuating.
Is there a better way? Serial entrepreneur Mike Michalowicz says, there is, and it involves a behavioral shift. He said that instead of following the conventional accounting formula of “Sales – Expenses = Profi,” we need to adopt a different formula: “Sales – Profit = Expenses.”
In this episode of the Freelance Blend Podcast, I explain in detail Mike Michalowicz’s “Profit First” system and how I applied it in my own life as a freelancer and business owner.
In this episode, we talk about:
- Why it’s more challenging to protect your money (from yourself!) when you’re a freelancer
- Why you need to fix profit first before growth
- The new accounting formula: Sales – Profit = Expenses
- How dieting is similar to budgeting
- Why online banking is ideal for the “Profit First” system
THREE STEPS ON HOW TO APPLY THE PROFIT FIRST SYSTEM
1. Set up at least five accounts: Income, Profit (1%), Operating Expenses (70%), (Tax 3%) and Owner’s Pay (26%)
2. Make your first distribution (once or twice a month).
3. Transfer to Tax and Profit to Hold accounts.
QUOTE FROM THE BOOK
“Profit must be baked into your business. Every day, every transaction, every moment. Profit is not an event. Profit is a habit.”
- Profit First by Mike Michalowitz
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