Simple Numbers, Straight Talk, Big Profits!

3 Lessons

1. 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.
2. The amount of productivity per dollar of labor is one metric that determines the success of your business
3. 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

1. Get your owner salary correct (market based wage) first so that the books accurately reflect the state of your business.
2. 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.
3. Determine a core (operating) capital goal for weathering up and down times in the market i.e. 6 months of overhead
4. Follow the four forces of cash flow like a finanical order of operations
   1. Pay your taxes – always set aside a percentage of profit for taxes
   2. Repay your debt – repay your debt with the rest of your profit
   3. Reach core capital target – contribute toward a goal amount of operating capital
   4. Take profit distributions – only when you have reached core capital target and repaid debt should you take profit distributions.