3 Lessons
- Don’t play numbers with owner compensation. Pay yourself a market based wage and only take profit distributions when your company has matured enough to do so according to the four forces of cash flow.
- The amount of productivity per dollar of labor is one metric that determines the success of your business
- Don’t spend down your profit to avoid paying taxes. Getting 30 cents on the dollar is not a good strategy when you’re buying depreciating assets.
3 Actionable Takeaways
- Get your owner salary correct (market based wage) first so that the books accurately reflect the state of your business.
- Get your pre-tax profit before taxes to 10% as a minimum. Only hire when you push it up to 15%. Use profit thresholds to drive business decisions.
- Determine a core (operating) capital goal for weathering up and down times in the market i.e. 6 months of overhead
- Follow the four forces of cash flow like a finanical order of operations
- Pay your taxes – always set aside a percentage of profit for taxes
- Repay your debt – repay your debt with the rest of your profit
- Reach core capital target – contribute toward a goal amount of operating capital
- Take profit distributions – only when you have reached core capital target and repaid debt should you take profit distributions.