Are You Making These 3 Common Mistakes Small Business Owners Make?

"What if, rather then you serving your business, your business served you" - Mike Michalowicz

Did you know that most online businesses use an age-old accounting method, one of the common mistakes small business owners make, that actually results in us paying ourselves last and generating a profit rarely?

We operate from a completely flawed model, and sadly, many business owners consider this the only way. Sell your products, pay all your bills and expenses, then, if there’s anything left, pay yourself—and lastly, whatever’s left over can be considered profit. Exhausting!

But what if I told you that this method is completely backwards?

I recently came across the book "Profit First" by Mike Michalowicz, and I’ll be the first to admit that the accounting method Mike identifies as one of the common mistakes small business owners make is a mistake I have made myself.

"The cash-eating monster" is something many business owners are familiar with. The expenses keep piling up, and the idea of profit seems to get further and further away. But it doesn’t have to be this way!

Thanks to some of the powerful tips in Mike's book, you can start generating a profit immediately—and make sure your business is one of the few that succeeds.

So, how do you know if you're making money mistakes in your business? Let’s explore each one.

The Top 3 Money Mistakes In Your Business

Mistake #1: Revenue - Expenses = Profit

The above formula is how most people run a budget in their business and lives. Based on traditional GAAP principles, Revenue - Expenses = Profit. However, Mike Michalowicz reverses this formula, suggesting that we need to pay profit FIRST!

Groundbreaking!

What if you managed your budget with Revenue - Profit = Expenses?

What if, instead of paying yourself last, you actually paid yourself first AND managed your expenses within the remaining funds?

This shift is one of the common mistakes small business owners make—failing to prioritize profit at the start. Start by determining how much profit you're going to set aside each month, week, or quarter. This will then determine how much money you have left to cover your business expenses.

And this brings me to Mistake #2.

Mistake #2: Managing your business by your account balance that day!

How many times a day do you check your bank balance?

How often do you make decisions based on that bank balance?

Rest assured, you are not alone.

This is one of the common mistakes small business owners make—thinking that just because there’s money in the bank today, or this month, it’s a green light to raise the bar. Maybe it’s time to buy more software, lease or purchase more technology, or splurge on a bigger office or a new car.

However, what you've done is raise the cost of running your business to a new high.

But what happens if you have a bad month? Do you have enough reserves to cover it?

Bank balance accounting is a slippery slope for small businesses, and one of the common mistakes small business owners make is relying on this method to make critical decisions.

What Mike suggests in his book is once you’ve paid your profit FIRST, you need to make your business expenses affordable with the remaining funds.

Why does this work?

Mike uses a great toothpaste analogy, which I’ll briefly summarize.

Have you ever noticed that when you buy a fresh tube of toothpaste, the first few times you use it, you slather it on without hesitation, thinking, “I’ve got plenty!” But as that tube runs low, suddenly you're squeezing, rolling, and getting every last bit of paste out, and it’s perfectly fine. In fact, you might even feel a sense of triumph for stretching it out just a little longer.

Managing your business expenses after you've paid your profit first works the same way. If you know exactly how much you have left after setting aside your profit, you’ll be amazed at how resourceful and thrifty you can be when necessary.

Mistake #3: Keeping All Your Funds in One Bank Account

Let’s go back to the toothpaste analogy again—and this is just my take on Mike’s theory—would you keep trying to squeeze the last little bit of toothpaste out of the tube if you had a bucket full of new tubes right in front of you?

Ah, no, would be the answer!

You'd probably toss the old tube the moment it became too challenging and reach for a new one, starting the process fresh.

The same principle applies when you keep all your funds in a single bank account.

Now, you might think you have the self-control to resist dipping into funds allocated for other purposes—but let’s be real, if that’s you, kudos, but you’re in the minority.

Most small business owners, myself included, find it tough to look at a bank balance and mentally subtract expenses to determine if what’s left is actually available. Instead, many will see the balance and assume it’s all theirs, diving straight back into Mistake #2.

This is one of the common mistakes small business owners make—making it harder than it needs to be by not separating funds.

Stop making it difficult. Move the funds out of your main account and leave ONLY the amount you have after paying your Profit First.

Want to learn more about Mike’s “Profit First” concept? Check out Mike's book here.

Have you read Mike's book? Did you apply the principles? I'd love to hear from you!

Comment below or contact me.