I’m at 35% PM and 60% CR. I want to be competitive but cater to upper end customers.
Profit after paying yourself?
my pay is what the “business” made after ALL expenses are paid.
2 Likes
By definition, “profit” is what the business made after all expenses are paid, which includes the business paying you for your labor.
5 Likes
The business paid me all it made, all its profit. So, if I worked 50 hrs a week for 52 weeks and the business profit was $100k I earned $38.46 per hour and pay taxes on those earnings. If $200 k for same hours…$76.92 per hour
That means my profit is $0.00 and my pay is something like -$1000. Nice.
Sighhhhh…those first few years are rough. 
4 Likes
Are you living in your truck?
2 Likes
Your pay is the profit and the profit is your pay as I understand it after time with my accountant looking at these matters whether a sole prop or LLC.
Your pay is not your profit. And including profits as part of yoyr pay devalues your business.
Many ppl say, “oh my business is worth 100k a year! (Because it generates 100k a year in revenue)” well, what are your expenses? What is your labor? In order to get a true valuation (and to know what your profit margin is, you must subtract costs, accruals, and labor (including paying yourself).
I often say to ppl, i dont care what your revenue is, tell me how much you pay in taxes - Because that will tell me everything about your business.
At any rate, i shoot for 30% profit on every job. And a 45% (min) closing rate.
3 Likes
Ok…say I subtract all my costs and pay myself only half of the profits…that is the same, seems to me, as not paying myself anything at all and having twice the profit, all of which goes into my bank account.
1 Like
That is correct but a little misguided. From a business stand point, you *should pay yourself half yhe profits and what is left over is your true profit margin. This now gives you a correct business valuation.
Think of it this way, if you sell your business the new owner is going to want to kniw how much can he pay someone to run it (like you did) so you will say “half of the profits” (whatever number that is)… the next questiom the new owner will want to know is, “how much profit is left over”. The new owner will dip into that profit to pay himself or use it to expand the business. If there is no profit left over after paying tge new you, then the new owner probably will not buy the business because its not profitable.
However, if youre not trying to grow -you need profits to grow- then yes, you can pay yourself all the profits. But that will tell the banks and pote tial investors (should you try to sell or grow) that your business isnt making any profit at all.
My perspective for the S Corp for which I (Malcolm) am the only shareholder and which has a stellar employee (Malcolm!) and office manager (Malcolm!).
:
- Malcolm’s “hands on” labor as a technician would be about 30% or higher. I value my labor higher than the industry standard of 30%ish because I am motivated and I am HIGHLY focused on getting repeat business and referrals.
- Malcolm the office manager’s non-billable hours (advertising, bookkeeping, bidding, scheduling, payroll, ordering supplies, filling out reports, taking the van to the shop, filing reports & blah, blah, blah) should be compensated.Perhaps 2.5 to 5%.
- Malcolm the shareholder wants to get cash distributions (aka profits) after all expenses (note that S Corps don’t issue dividends). Malcolm the owner only gets cash distributions after all expenses, including labor, are paid.
So, using my formula the OP’s 35% profit would be about 2.5% if the owner’s technician labor is valued at 30% and office manager labor at 2.5% is accounted for (35-32.5 = 2.5%).
1 Like
I suppose my close rate for WC is around 90%. For carpet cleaning it is a bit lower.
Interesting question, I should start tracking these stats closer.
I agree with how WCS and RSH looks at it from a business point of view. However, from an accountant/tax point of view any profit or loss is personal income of the LLC member(s)
" Income Taxes for Single Member LLCs
If you operate single member LLC, then the IRS will treat your business as a sole proprietorship (unless you elect to be a corporation) – meaning that the LLC itself does not pay taxes. Instead, you report all profits and losses of the LLC on your personal income tax return on (Schedule C) and file it with your 1040 tax return."
https://www.sba.gov/blogs/6-things-you-need-know-about-your-tax-responsibilities-llc
It is the same money looked at and accounted for differently. Technically, from a business point of view and easy of succesfully winning an IRS audit, no business monies should be considered personal income until it has passed through the business bank account to your personal bank account.
3 Likes
Lol. Told this lady that my boss said I could have today off. She was all "oh cool boss, where do you work? " pointed at my t-shirt. Right here. Then it dawned on her that I’m a sole prop. Haha.
8 Likes
I love being the boss.
1 Like
That’s helpful but at the same time the potential buyer could look at the $500k profit after $250 k of expenses and deduce “I can make $250k a year, give $125k to a manger and keep the rest for myself.” Right? I do see the value of maybe separating it out. I do take “draws” that are typically half of the profits. Is it semantics?
I didn’t for years unfortunately. I didn’t really know if I made any money…really. Now I have stats for EVERYTHING. Close rates, repeat customers, earned per hour by hourly employees, earned per hour by subs, earned per hour screen work/ glass work, earned per day/ per week/;per month, percentage of profit, panes per hour when large, medium sized and small…and a few others. I will have so much documentation when I’m ready to sell the business it will be overwhelming clear what I and what others “made”.
4 Likes
I replied to you below…maybe not in the right spot.
