The Profit First system can easily fall apart if people do not follow it correctly. It is essential to not misuse money from certain accounts or stop following the allocation system. The first mistake people make is trying to do this alone. Michalowicz believes that partnering with someone else makes people more accountable, and encourages the reader to find a reliable friend and create an accountability buddy system. This will make them more reliable, motivated, and less stressed.

The second mistake is beginning too quickly. Michalowicz reiterates his advice to start small and grow slowly towards your TAPS. The third mistake people make is to try to grow their company first and hope for a big profit later. While some ultra successfulultra-successful companies grew enormously and then made a massive profit overnight, the author believes this is the exception, not the rule. For most normal companies, profit and growth go hand in hand and people should not delay profit while building their company.

Famed businessman and investor Mark Cuban’s rule is that a business must be profitable by 90 days to deserve investment.

Mistake number four is cutting the wrong costs. While being frugal is important, you still need to create a quality product in an efficient way. Cutting costs on important things might compromise your business.

The fifth mistake is “reinvesting” in the company by taking money from profits and using them towards Operating Expenses. The author feels that this euphemistic term is used to cover up the fact that people’s operating expenses are too high. Similarly, using credit cards liberally is another red flag. When people are tempted to “plow back” or “reinvest” in the company by taking away salary or profits, they should reassess their finances and options.

The sixth mistake is “raiding the tax account” (184). It is common for people to not put enough aside in their tax account, as they only put aside the recommended estimates from their accountants. However, if your company is making more money, you will have a higher tax bill, and neglecting to set aside adequate funds will create stress later on. The seventh mistake is “adding complexity” (185). Some business owners who are used to GAAP make complex rules for themselves, or try to reorient the system. Michalowicz advises against this, saying that the system works well because of its simplicity and intuitive layout.

The eighth mistake is skipping the bank accounts. In doing so entrepreneurs fail to have the financial facts of their business clearly in front of them, and struggle to keep up with the numbers and make decisions based on them. He recommends finding a professional who is supportive and knowledgeable about this system.

The author’s list of eight mistakes reveals the common missteps in implementing the Profit First system. This chapter presents Profit First as a foolproof method—as long as it’s followed correctly. By not including any references to people who have had negative experiences with this system, Michalowicz implies that everyone with a business can benefit from his strategy as long as they avoid these missteps. 

Chapter Lessons

• Embrace the simplicity of the Profit First approach
• Do not misuse money or become overconfident about having adequate funds
• Always take a profit and do not try to “reinvest” profits and salaries into the company

Reflection Questions

• Which of the eight mistakes have you made in the past? How will you avoid them in the future?
• Do you feel comfortable implementing the Profit First strategy? Why or why not?