Now for the three quick educational stories about Parkinson’s Law, The Size of Your Dinner Plate, & Toilet Paper.
They’re three lessons you won’t forget that reinforce why becoming a Cash Rich Business not only is a good thing, but it works because it works WITH human nature not against it.
Perhaps you, like me, in my previous businesses, would look into your bank account to see how much sales had accumulated. Then I’d see on my desk a pile of bills that I could need to be paid, so I’d extract from the sales to pay these expenses.
Because that’s what the formula says to do.
After that, I would look for the leftover. The profit. But unfortunately, there was barely ever a leftover.
There was the only leftover when I had a big moment like selling a business, or a huge customer coming in. Then there’d finally be some profit, momentarily, until my expenses would expand to fill it.
There a principle called Parkinson’s law.
It states: When a resource is made available, we will use it up. All of it.
For example, if we are given four weeks to do a task, it will take four weeks. If we are given 4 hours to do a task, it will take 4 hours to do.
While this Accounting formula is very logical, it doesn’t account for Parkinson’s Law.
Changes in Human Behaviour is very hard. Working with Human Behaviour is easier.
This relates to plate servings, which describes our behaviour to see what’s on the plate and consume it all.
The same principle applies when it comes to cash and profit, our human behaviour is to see what’s on the plate and consume it all. Or, see what’s in the account and consume it all, until there’s nothing left.
I want to propose a NEW formula. Mathematically, it’s the same formula, but according to Human behaviour, which you’ve now learned, it’s radically different!
What if from today every time you made a sale, you FIRST took out a portion of profit and put that away.