If you've spent months —or years— working nonstop in your business and at the end of the month your bank account still doesn't reflect that effort, you're not alone. We've all been there, and it's more normal than it seems.
There's a reality entrepreneurs tend to hear and then ignore, because it hurts and it's scary to accept: eight out of ten businesses don't generate real profit for their owner. Not small profits. Zero. Even worse: many times the owner ends up subsidizing their own business with personal savings, credit cards or loans that never quite get paid off, because there's always something new to cover.
of small businesses generate no real profit for their owner. Not small profits: zero.
The reason? It's not the economy, not inflation, not the competition, not the classic "the market is tough." The reason, according to Mike Michalowicz —author of the book Profit First— is something much simpler and much more frustrating: the financial formula we were taught is wrong.
The formula we learned (and that's failing us)
Since you opened your business, consciously or not, you've been operating with this equation:
At first glance it seems logical. You sell, you pay your expenses and what's left is your profit. The problem is that nothing is ever left — there's always something new to pay. And right when you were starting to feel comfortable with your bank account, the car broke down, someone got sick, a new bill arrived. The problem is that expenses always find a way to expand until they consume exactly what comes in.
This isn't a character flaw (so stop beating yourself up); it's a law discovered back in 1955 by the economist C. Northcote Parkinson, known today as Parkinson's Law:
The demand for a resource expands to match its available supply.
In financial terms: your expenses will grow until they consume exactly all of your income, no matter how much you earn. Sell more, spend more. Hire more, and more needs appear. The plate always fills to the brim —and profit, sitting at the end of the equation, never arrives.
The three real reasons there's no profit
1. Profit lives at the end of the formula
When you treat profit as "what's left over," you unconsciously give it the least weight in your financial decisions. The supplier first, the rent first, payroll first —profit can always wait. And it waits so long it never comes.
2. We manage money by looking at the total balance
Most business owners have made financial decisions based on what we see in our bank accounts. If there's money, there's peace of mind —and "necessary" expenses appear that really aren't so necessary. But if there's no money, there's panic: we go out looking for income from any client and, naturally, working under that pressure leads to desperate sales, bad deals and more wrong decisions. This cycle is exhausting, a roller coaster: no matter how high the numbers climb in your accounts, in no time they always drop, and hard.
3. We confuse growing with being profitable
More sales, more employees, a bigger office —in the business world this is celebrated as success. I've learned not to be dazzled by empty shells: during my time in Silicon Valley I've seen 3-person businesses billing over a million dollars a year, and others with a large staff, offices and assets that are counting pennies to avoid going bankrupt. The truth is that a business selling a million and spending nine hundred ninety thousand just to operate isn't a successful business: it's simply a company with a great appearance that's one month away from collapse.
Parkinson's Law applied to money
Think about when you have a new tube of toothpaste. How much do you use? A lot, because there's plenty. Now imagine the tube is almost empty. Suddenly you're able to squeeze out the exact amount you need —and nothing more. The same happens with our business's money.
If you have access to all your income in a single account, you'll consume almost all of it. When there's less available, your business finds ways to operate with that —and does it just as well.
Lots of money → all spent. Little money → tight. The results are similar; the spending, radically different.
This is precisely what makes the traditional formula so devastating: by putting all the potential profit in the same container as operating expenses, we guarantee it disappears.
The solution: change the order of the formula
The first step is completely simple: move profit to the beginning of the equation.
It's not accounting magic. It's a behavior change grounded in how the human brain actually works. By setting aside our profit first, before making any payment, we're giving our mind an order of priorities and structuring our behavior, creating healthy habits that lead our businesses to a financially healthy state too.
The mechanism is concrete: instead of having a single bank account where everything comes in and out, you open several accounts with specific purposes —income, profit, owner's compensation, taxes and operating expenses. Every time money comes in, you distribute it in predetermined percentages. What lands in the operating account is the only thing you can spend.
Where do you start?
That's the entire commitment to get going. Set it aside on every deposit and let the habit —not the amount— do the work.
Just with 1%. Open a separate bank account and call it "Profit." With the next deposit you receive, transfer 1% there. If $20,000 comes in, set aside $200. If $5,000 comes in, set aside $50. Don't touch it.
That 1% won't make you rich overnight —but it will do something more valuable: it will prove to your brain that the system works. That it's possible to set aside profit and keep the business running. From there, the percentage gradually rises until it reaches the system's target levels.
In the next articles in this series we'll dive into each part of the system: the five accounts, the target percentages by industry, the 10/25 rule and how orderly bookkeeping is the foundation that makes all of this work.
At DISSAU we don't just keep your bookkeeping current: we turn your numbers into decisions. We apply this cash-flow management so your business protects its profit, spends smarter and grows with real data. Talk to a specialist.
