Many small business owners and entrepreneurs focus on sales and growth. But the real issue could sit in the systems, habits, and financial structures that guide their businesses.
On today’s episode of Business Trends Today, we’re joined by Mike Michalowicz, author, entrepreneur, and lecturer. His latest book, The Money Habit, shows readers how they can apply his proven business principles to their personal finances.
Moving the bottom line to the front of the line
Michalowicz says many small and medium-sized businesses are built on a flawed financial model where profit comes last. Michalowicz challenges business owners to change that model to put profit first.
While many entrepreneurs start with the goal of financial freedom, Michalowicz points out that a large share of SMBs remain unprofitable. It’s not due to a lack of effort, Michalowicz says, but due to flawed timing and behavior.
“It is human nature (to think that) when something comes last, it’s insignificant,” Michalowicz said. He explained that when profit is positioned at the end of the financial process, it is often deprioritized in favor of more immediate operational needs.
“When profit comes last, or it’s the bottom line or the year-end, those are all behavioral terms for saying not now.”
To address this, Michalowicz promotes a “Profit First” framework that restructures how money flows through a business. Rather than treating profit as a year-end calculation, he says it should be allocated immediately from incoming revenue. Michalowicz says this approach counteracts natural tendencies to overspend or reinvest too quickly. He also recommends shifting profit to the front of the process to create consistent discipline and stabilize financial decision-making.
Parkinson’s Law and forced efficiency
Michalowicz says many small and midsize businesses fall into a predictable spending pattern, which he compares to Parkinson’s Law. Parkinson’s Law states that “work expands to fill the time available for completion.” Applying this concept to the financial side of business, Michalowicz says that when revenue increases, business owners often allow spending to rise alongside it, rather than preserving financial discipline. This can create a cycle where higher income doesn’t translate into higher profits.
To fix this problem, Michalowicz recommends deliberately restricting visible cash by allocating money to profit and tax accounts first, before operational spending decisions are made. He says this approach creates “forced frugality,” pushing businesses to operate within tighter constraints and encouraging more efficient decision-making.
“As more money comes in, we’ll find ways to spend it,” he said, adding that constraint often drives innovation and sharper financial discipline.
For SMB owners, he suggests that external accountability systems, whether through advisors, trainers, or structured processes, can help reinforce consistency.
“When you invest in an outcome, you are vested in the outcome,” he said.
Maximizing value when it’s time to sell
At some point, small business owners may want to sell their business. Michalowicz encourages business owners to have a strong exit strategy built on two core factors: consistent profitability and independence from the owner.
Michalowicz described the ideal business as a cash-generating “ATM.” One that produces reliable profit over time, rather than a volatile operation dependent on constant intervention or oversight.
Businesses are more attractive to buyers when they can operate without the owner’s day-to-day involvement. Michalowicz admits it may seem counterintuitive to sell a profitable business that doesn’t require much owner involvement. He says businesses structured as if they will never be sold often become the most desirable targets to buyers.
Gaining free, valuable feedback
One way small and midsize business owners can tap into their own customers to get strategic insights, Michalowicz says. He recommends that business owners talk directly to their customers and ask three key questions: what the business is doing right, what is wrong with the industry as a whole, and where similar customers tend to gather.
“Find out what those are. Position yourself to be there consistently, and you’ll be perceived as being everywhere in their world,” Michalowicz said.
This kind of informal research can help SMBs refine positioning, improve service delivery, and uncover new growth channels, according to Michalowicz.
ASBN, from startup to success, we are your go-to resource for small business news, expert advice, information, and event coverage.
