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Business, Entrepreneurs

What is 1 Simple Business strategy that can change your life?

Sounds too good to be true right!? Believe me it isn’t. I have a really simple business strategy that will not only guarantee you profit but will change your life for good. This is the basics of any business strategy and by little planning, you’ll be making profit with each sale. And I am saying this because the guy who introduced this have helped thousands of small businesses to grow. Now this isn’t a ‘get rich overnight’ kinda thing. But if you implement this in your business carefully and with planning, profit is guaranteed.

Who is the guy behind this simple business strategy?

You must have heard of the book ‘Profit First’ by Mike Michalowicz. He is an American author, an entrepreneur and a lecturer. He has so far written seven books and this particular book was originally released in 2014.And then revised and expanded version was released in 2017.

Anyway so why should we hear him right? Because he’s himself tried all the basics of every business strategy with a boatload of planning whatsoever. And also because he’s been through all the failures, only to rise. He hit rock bottom with a whole family to provide to. He started a small but impressive business and sold it for millions of dollars. And that’s when his life gave him a surprise.

He bought all these lavish things, went on a ton of vacations because all he knew was that he just had to create a small business and then sell it for millions of dollars. Little did he know that life ain’t that simple.

He started a number of businesses and all of them failed. All of them. He was in a ton of debt. His account balance which had once reached an impressive height started crashing down. Maybe because his business strategy was wrong or maybe because he wasn’t planning it well.

simple business strategy

Then one day, he got this brilliant idea while watching a gym trainer in an advertisement. I mean who would’ve thought. Actually this is just a different way of looking at the cash flow. Just a twist in the original equation.

What is this idea?

simple business strategy

SMALL PLATES. I know weird right?! I mean your accountant would be like who are you to tell me the basics and the planning of any business strategy.

You know back in 90s, people used to eat from small plates. And their moms taught them to always clear their plates so that there’ll be no wastage of food. Small plates, Small meal,Healthy people.

But with time that teaching hasn’t changed. But we’ve increased the plate size quite a lot, quite conveniently.So because we have more food, we eat more food. And hence that belly.

That income account of yours is a big plate. So in order to serve yourself and everyone involved in the business, you have to distribute this to smaller plates. I’ll tell you how to do that, just wait a little! You’re almost there.

We have always been taught,

SALES-EXPENSES= PROFIT

Why have we been taught to keep profit last? Isn’t that the whole reason to start a business? To earn.

We follow this because this has been going since forever. Its like that thing batman said,

“Everything is impossible until someone does it.”

We are following the same formula because no one thought it could be changed.The basics of any business strategy can be changed. No one wanted to take the risk. No one wanted to do it differently.

But to be successful these days, idea matters. Everyone is doing the same thing the same way. If you want to stand out, be different. And that’s exactly what Mike did. Because he had nothing to loose, he took a risk which proved to be a blessing as we all know now.

The new and simple business strategy

Keep Profit first,always.

SALES-PROFIT=EXPENSES

Choose two banks. One easily accessible and the other not at all accessible.You’ll get to know why. Divide your total income into the following accounts and put them in the respective banks.

BANK 1BANK 2
OWNER’S PAYPROFIT
OPERATING EXPENSESTAXES

The Bank 2 shouldn’t be near your workplace or home. It should be at a far place which would take you hours to reach.A bank which doesn’t let you withdraw money easily. And no I’m not going mad. Just wait, I’ll tell why do this absurd thing.

I really hope you guys don’t feel this way after reading this

Now why this? So that when your expenses start to increase you wouldn’t rush to empty your profits account. Because by doing this you once again will fall back into that vicious circle. And you’ll never be able to make profit. If that’s happening,what you have to do is cut down your expenses or make bigger sales. And cutting down expenses is any day easier than the latter.

I’ll explain this with an example. Suppose you’re given a project and you have to finish it in 3 days. Somehow or the other you’ll finish it in 3 days. Now you’re given 14 days for the same project. And I’m pretty sure this time you’ll take 14 days to finish something which you could’ve done in 3 days.

This can be explained by Parkinson’s law,

“Work expands so as to fill the time available for its completion”

How is it relevant here?

See now when all your income is available for expenses, you spend more. You’ll be like hey i earned a million dollars, let’s buy an expensive equipment. I’m not saying it’s wrong. But if you didn’t have that extra cash, you’d be working with the old stuff only without any problem.

That extra cash is your profit. Money that you should be spending on yourself and your family. So if you take out your profit first, you’ll somehow definitely manage your expenses with the available amount.

Here’s the order in which you have to distribute your cash.

ALWAYS FOLLOW THIS ORDER

simple business strategy

1.INCOME ACCOUNT:

This is the a large plate full of cash. Now you have to distribute this cash to all the other accounts.You have to create smaller plates with this big plate.

2.PROFITS ACCOUNT:

Always take out for profits account first.Now I’m not saying give 50% of your income to profit. Start easy. Start with 1%. And slowly grow it up.

3.OWNER’S PAY:

Do not sacrifice on this one. Always pay the owner i.e. your best employee first. It’s your business.You are it’s best employee. Never cut down your pay. Start small but. Initially if your pay represented 20%, add 1% to it. So now you have 21%.

3.TAX:

Well this isn’t much of a choice. Always pay your taxes, always. Period. Now if your taxes account for 5%, make it 6%.You see how we are taking it one at a time. Just 1% more, thats it.These amounts will be so small you won’t even feel anything different.

We just have to adjust our expenses until we are aligned with our Target Allocation Percentages(TAPS) where we want our real revenue to go. Once we get familiar with our TAPS, we’ll just have to do the math and put specific percentages to their respective accounts.

4.OPERATING EXPENSES:

All the remaining percentage would go into this account. Now let’s suppose your expenses increase, that doesnt mean you have to take it from profits or your own pay. You just have to cut down the expenses or make bigger sales. Making bigger sales is rather difficult so focus on cutting down expenses.

Remember we have only added 3% extra into all the other accounts.And we can cover this by cutting down 3% of our expenses.That shouldn’t be too difficult right?!

But do one thing,add up all your expenses of last 12 months. Multiply this by 10%.

I know what you’re thinking. Why do we need to cut our expenses by 10% if we only need 3%. Believe me you do.Firstly bills won’t go overnight. It’s gonna take you a while to cut down the cost on expenses.And also we have to build cash reserves.

FOLLOW THE 10/25 RHYTHM

What is this? Instead of paying your bills monthly or whenever you feel like, do it twice a month. Every 10th and 25th of the month.This way you won’t keep going back to see your accounts. And you’ll get accustomed to paying your bills twice in an orderly manner.

What most companies follow?

PROFIT10%
OWNER’S PAY10%
TAXES15%
OPERATING EXPENSES65%

Now just because most of the companies are following this, doesn’t mean you have to right away follow it the exact same way. Always start by little and work your way up.

This simple business strategy with some planning will make your business really healthy. It won’t turn into a soul sucking monster. It’ll help you grow. And you’d pat your back that you took this decision.

So this is just the basics of this business strategy. The major portion. I’ve tried to explain this in a really simple way.Now this isn’t some rocket science. If you have the guts to start a business from scratch, what’s this! I know you can do this.Your business will become healthy more than it ever was.

If you want more such articles, please subscribe! Till then, happy enterpreneuring 🙂

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13 thoughts on “What is 1 Simple Business strategy that can change your life?

  1. So much useful and awesome information here. I’m going to have to print this off and read it so I can highlight and add my own notes. There was a lot to unpack here.

    Kileen
    cute & little

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