©2018 by WestCade Capital.  A Paperless Company

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6 Financial Principles to Business Performance

  • Market Wage for Business Owner

  • 10%+ Net Income

  • Labor Efficiency 

  • 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

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