The rate your customers are watching

The 30-year mortgage rate just hit 6.58%, the highest it's been in nearly a year. That number lives in the housing market, but its reach is longer than that. When borrowing gets more expensive, discretionary spending tightens. People delay the renovation, postpone the event, put off the purchase that felt possible last quarter. They do not announce this. They just stop showing up, or they show up less. If your revenue has a soft underbelly, higher rates expose it before you feel them directly. A steady owner does not wait for the softness to become a crisis. She looks at her pipeline right now and asks which customers were already on the fence, and she calls them this week.

Mike Michalowicz spent years watching businesses fail with revenue on the books and nothing in the account. The culprit was not laziness or bad luck. It was the formula. Sales minus expenses equals profit treats profit as whatever survives the month, so it rarely survives. His fix was structural, not motivational: take profit first, even a small percentage, before you pay anything else. The business then runs on what remains. Small allocations, taken consistently, change what you believe is possible on lean months. They also change what you spend, because the money is no longer available to spend. When rates rise and customer caution spreads, the businesses that stay open are rarely the ones with the most revenue. They are the ones that already decided profit is not what's left over.

Mike Michalowicz makes the case himself, in his own words, in his talk at TEDxFultonStreet on YouTube.

Learn from someone who's done it: Mike Michalowicz — 'Profit First' is better for entrepreneurs than 'G.A.A.P.'