Working in the ‘Gig Economy’ where you spend your career jumping from one project to the next can provide the freedom of choice that so many in the creative world desperately crave…but the dark side of living the freelance life is the complete, total, and utter lack of job security. Now with the advent of the brand new AB5 legislation here in California, practically overnight it has become almost impossible to make your living as a freelancer. Without a sound financial system (enter ‘Profit First’) that keeps you equally prepared for both the feast and famine portions of your career (and there WILL be both), your lack of savings could be the deciding factor between saying yes or no to a job you would otherwise never consider.
Fast forward to a decade later where you’ve spent the last ten years “just finding the next gig” so you can pay your bills you find yourself wondering “How the heck did I get here?” And one of the main reasons could be as simple as not having your finances organized so you can confidently say NO to projects you don’t want to work on.
My guest today is Mike Michalowicz, founder of several multimillion dollar companies as well as an author of multiple bestselling books on entrepreneurship. Today we talk specifically about his book ‘Profit First,’ an incredibly simple yet powerful way to manage your finances as a small business owner (and yes, even as a freelancer you own a small business) that if done consistently can afford you the time and freedom you need to prioritize your career growth (and your well-being) as opposed to always feeling like you’re just chasing the next gig.
(Note: This episode doesn’t specifically talk about the AB5 legislation because this interview was recorded before it became law. But regardless, if you’re struggling to navigate the new world of being a freelancer versus becoming an employee, there is no system I recommend more highly than Mike’s ‘Profit First’ system)
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Here’s What You’ll Learn:
- Where the idea of “Profit First” came from in Mike’s experience as an entrepreneur.
- Why whether you work in the ‘gig economy’ as freelancer/contractor or run a business, you are effectively an ‘entrepreneur’.
- A powerful demonstration of why the conventional wisdom of “Income – Expenses = Profit” logically makes sense, but is behaviorally flawed.
- How the “Profit First” formula “Income – Profit = Expenses” flips the script and creates a powerful paradigm shift in how you look at your business.
- How to apply the “Pay Yourself First” principle as a freelancer and setup a system that will automatically build that ‘sleep well’ money cushion to give you the freedom to pursue a more rewarding career path.
- ’Parkinson’s Law’ of human behavior around money and how the “Profit First” principle works with it, instead of against it.
- Mike’s deeply personal story of becoming a self-made millionaire in his early 30’s, losing it all in 2 years, breaking the news to his family, and the moment with his daughter that he’ll never forget.
- HOW TO: What does it mean in practice to take your “Profit First” and how it impacts your business/financial decisions (even if you think you’re not ‘profitable’ yet).
- QUESTION: As a freelancer, if you had to hire someone to replace you, what would you have to pay them?
- How to assess the health of your business.
- Resources to learn from the most fiscally elite businesses similar to yours (even as a freelancer).
- REMINDER: There are many tax-benefits to setting yourself up as a business, and allowing your business to reserve your taxes for you.
- The key to Profit First is essentially setting up your financial management based on your behavior.
- The 5 foundational bank accounts to setup: Income, Profit, Owner’s Compensation, Tax, Operating Expenses
- TIP: As a freelancer, create an account to set aside a percentage of income for the ‘lean months’.
Useful Resources Mentioned:
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Mike mi-KAL-o-wits is the author of Profit First, Surge, The Pumpkin Plan, and his newest release Clockwork. By his 35th birthday, Mike had founded and sold two companies – one to private equity and another to a Fortune 500. Today he is running his third multi-million dollar venture, Profit First Professionals.
Mike is a former small business columnist for The Wall Street Journal and the former business makeover specialist on MSNBC. Over the years, Mike has traveled the globe speaking with thousands of entrepreneurs, and is here today to share the best of what he has learned.
This episode was edited by Curtis Fritsch, and the show notes were prepared and published by Glen McNiel. The original music in the opening and closing of the show is courtesy of Joe Trapanese (who is quite possibly one of the most talented composers on the face of the planet).
Note: I believe in 100% transparency, so please note that I receive a small commission if you purchase products from some of the links on this page (at no additional cost to you). Your support is what helps keep this program alive. If you have any questions, please don’t hesitate to contact me.