Governments often have strong motivation to formalize ever-growing informal firms. However, whether formalization improves the earnings of small firms is a crucial policy question. Firms choose to be formal, so the impact of evaluating formalization suffers from self-selection bias, and casual inference requires addressing this bias. This study aims to examine the impact of formalization on the revenue and profit of informal small firms using randomized encouragement design. Small firms in Malawi, one of the poorest countries, are considered the units of analysis in the present study. This study uses a dataset prepared by Campos et al. (2018), who conducted a randomized controlled trial to examine different ways to formalize small firms in Malawi. Campos et al. (2023) examined the impact of Offer for cost-free business registration, coupled with a bank account opening information session on formalization. In other words, formalization acts as an outcome variable in the study of Campos et al. (2023). In contrast, this study considers the offer for cost-free business registration, coupled with a bank account opening an information session, as an instrumental variable and formalization as the treatment variable. The results show that formalization significantly increases the revenue and profit of small firms. The heterogeneous impact analysis suggests that formalization helps only manufacturing farms earn more.