6 Financial Principles to Business Performance

SUMMARY OF PRINCIPLES

MARKET WAGE FOR OWNER

• Know what your market wage is for the role you fulfill.  If you are not paying yourself appropriately then keep track of your sweat equity.

• Everyone in the business must be paid a market wage

• Pay investors back first before you distribute profits

• Remember you are a paid a salary for what you do in the business and you're a shareholder who’s paid for the performance of the business

10%+ NET INCOME

• Ignore EBITDA (earnings before interest, taxes, depreciation, and amortization) and focus on pretax profit earning - all expenses.

• 10% is healthy and 15% is a great business

• Focus on Gross Profit

• A business needs to be at 15% net income before they reach a million dollars in gross revenue

CASH FLOW

• Know where your cash goes

• Keep taxes out of your operating account.

• Get your line of Credit & Credit Cards to $0

• Borrow term debt only when you have a clear understanding of your ROI on the purchase and a strategy to pay back your debt. 

• To become fully capitalized you need 2 months operating expenses in your accounts.  

• Take distributions on a formal basis each quarter.  

FORECAST: KNOW YOUR NUMBERS

• Find a reporting rhythm and hold your team accountable

• Focus on having the right metrics. Keep it Simple

• Check your bank accounts daily

• Gross Profit and Labor productivity have to be apart of your reporting rhythm

• Keep your P&L simple 

• Determine a labor productivity ratio for your business

• Culture, productivity, and profitability are your 3 legs of the stool

UNDERSTAND THE ECONOMIC VALUE OF YOUR BUSINESS

• Debt is not capital

• Put sweat equity into your business whenever possible

• Only make financial decisions that increase the value of your business