Episode Details

How to Build a Profitable Architecture Firm

Profit… Then Art. In order to be a better architect, we must first be better business people. We need to build better businesses. This week’s guest is the author of Profit First, a book outlining the simple process of transforming any business from a cash-eating monster to a money-making machine. Accounting can be overwhelming and complicated, not to mention difficult to understand. This week, you’ll learn a step-by-step process to guarantee that you’ll be profitable.

This week at EntreArchitect Podcast, How to Build a Profitable Architecture Firm with author Mike Michalowicz.

Mike’s Origin Story

Mike was a Jersey boy all his life who worked at a computer store right out of college. He had a drive to start his own business and quickly realized that managing a business wasn’t as easy as he thought. It took him a few years of trial-by-fire to fall in love with entrepreneurship. He learned that as the solo-guy, you only eat what you kill; the fear kept him going. He sold his first business to a small private equity firm and then started a computer crime investigation company in the right place at the right time.

Although a lot of people face struggles, few people talk about them. After selling his second company, Mike felt he was an expert entrepreneur, he thought he knew all there was to know about running a business. He went on a spending spree and became an angel investor… where he killed every business he invested in. After struggling to pay off his debts slowly, a fire was reignited in him to discover entrepreneurship the right way; he wanted to live a satisfying, sustainable life. He began writing books, at first to process and solve the problems he was personally facing.

After hitting rock bottom and losing all his money, he went through a two-year bout of functional depression. Someone suggested journaling to vent, and it inspired him to not only write his problems, but log his solutions.

Can you share your thoughts on small firm accounting?

It boils down to our behavioral wiring. Many business owners follow certain practices, and GAAP (Generally Accepted Accounting Principles) teaches us to use a system that counters our natural behaviors. For example, logically we should pass on desert, but behaviorally we eat it anyway. GAAP says that sales minus expenses equals profit. The problem is that when we put the profit last, it’s our behavior to disregard it. In order to prioritize profit, we have to put it first. Every time a deposit comes in, take a predetermined percentage for profit and put it somewhere safe. Then, run your business off of what’s remaining. Pay yourself first. Businesses that do this are all more profitable than they were in the past because the fundamental law says that what we have is what we use. If you have a small amount of food, you’ll eat that.

What if someone says, “I already don’t make enough, how can I set anything aside?”

If you’re making due with what you have now, you’re still scraping by. By taking the money off the table first, you’ll continue to scrape by but the difference is this time you’ve put money away for profit. Think of 401K: you get a gross payment for your job, but a percentage is taken for your 401K. You never think about the percentage that was taken away because you never see it, your life is already adjusted to live off of the remainder. When you take your profit first and don’t have the money to pay your bills, that’s a direct sign that you need to be more frugal and make some different decisions on your finances. Find the th