6 Financial Principles to Business Performance
Market Wage for Business Owner
10%+ Net Income
Cash Flow - Reinvest at 50% ROI, Pay Taxes, Pay Debt, Fully Capitalized, Profit Distributions
Forecast: Understand Your Numbers
Understand the Economic Value of your Business
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
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