Dee said it for me. Thank you.
The reason that the semantics matter is that if you want to compare your “profit margin” to that of other companies, you need to figure it the same way that they do.
The standard is to pay yourself an appropriate wage/salary for the labor that you perform. Then, after paying yourself and paying all other expenses, you will get an accurate view of what your actual “profit margin” is. How much would it cost your company, even if it’s a one-man-show, to replace you, if you stopped doing any work in the business and just collected the profits? $30K? $50K? $100K? After you paid that guy (and all other expenses), what is left over would be the profit.
We are all free to use whatever terminology we want with our business and our money, but if we use our own formula instead of accounting standards, then apples-to-apples comparisons are impossible.
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I can see what you’re saying Tony. I guess my next question is what is the “standard”, what is an “appropriate wage/salary” such that after that is considered/removed one can see what the profit is? I suppose doing it both ways might be wise i.e. show business profit and the theoretical buyer can do his/her own math or or show what I paid myself and the residual profit. Thanks for weighing in. 
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How much would it cost to hire a clone of you, to do all of the work that you do? Could you hire someone to do what you do for $10 per hour? Probably not. $15/hour? $20? More? Be honest and realistic, get it close, and you will be in the right ballpark.
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check out the simple numbers webinar in the wcra
or buy the book simple numbers by greg crabtree on amazon
it will be clear to you in a great way, you will also see the most important things to track and it will explain the profit number very very clearly
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Great feedback everyone. Thank you.
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good book.
So with all this talk about profit margin and percentages, in you guys opinions, what is a simplified explaination for resonable take home percentage pay as a solo operator generating 100k gross revenue? Just curious what you guys thoughts are on this peticular issue.
Good thread by the way @Blue_Ocean_Window_Cl
I have a friend of mine from Brazil that she has a great idea about profit (at least from my point of view). She always leaves 60% of all money coming in for the business, we call it: Cash Flow. And the 40% reaming is her’s. From there she will pay tithe for her church and anything else that she needs, so her business always has cash flow.
30/70
business expenses/cash left
it can get up to 40/60 depends how lean you can run
but if sole prop, the taxes are so high they will definitely skew the numbers at 100k+, time to incorporate
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30/30/40 (goal)
Me/business/expenses.
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I must be doing pretty ok then because I’m somewhere close to 50/50 or 48/52. At least that’s where my accounting fell for 2016. I’ve managed to keep ridiculously low overhead though.
??? 40/50 per cent for a sole proprietor would be my guess but it would have to have a lot of “depends on”
40% -50% as business expenses is way, way high unless somebody is rolling in a new Denali pickup or something
or an indicator of less than a full schedule (less than 85% of possible m-f workdays) or less than optimum rates
people are pulling 150k gross a year with much less than 30% in business expenses
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True enough unless there is some building of the business, help/tools/insurance/comp/better vehicle etc.
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Well if it sweetens the deal any I did pay off my 14 Tacoma last year. It was practically new when I bought it. Only took 10 months. My accountant wasn’t too pleased but I was… Lol.
That purchase along with others was figured into the 50/50 calculation. So the expenses for 2017 will be more in line with your numbers.
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Nail on the head right there…
Everyone is such a pro… high expenses could very easily indicate growth.
Without growth, the business fades into oblivion.
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Just looked it up. It’s only 23 bucks. Gonna have to check that out.
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