Will it buy us a boat?

This is a phrase my biz partner and I use to mean, "are we doing more than paying overheads, wages, suppliers and taxes yet?" i.e. did we make any money for ourselves?  And laughable though it sounds, it is surprisingly easy to forget.  You can be so busy running your business that you forget to check if you can feed yourselves.

Now I know it's also very easy to decide how much you need to earn, take that out of the business, then wonder why your going bust.  And though I've seen it done several times, it's stupid.

So how do you move from keeping your head above water and paying your staff to the excess wealth that everyone who doesn't run an SME thinks you're making already?  How does one move out of the corner shop, so to speak.

The honest answer is I don't yet know.  But having got our business to the state where it will just about run itself without generating much in the way of dividends, this is the next important question to which we shall address ourselves.  The truth is that I have no real desire for anything as opulent as the picture above suggests.  But if you can't create a modest pension for yourself from your endeavour, what are you in business for?  Thoughts and ideas, most welcome!

Turnover, Gross and Net

I'm constantly amazed at how often, apparently sensible, people get these three things confused. I was asked recently what happened to the large profits our biz makes. This person had looked at our turnover and decided that pretty much all of it was spare cash to blow on fast cars and designer clothing. Their question seems to contain the hint that they felt someone with such wealth should dress a little better. On another occasion it became apparent that someone we work with on a profit share arrangement, thought that after his 15% had been paid to him we got to spend the remaining 85% on luxury items. So for the record here's what happens in our biz.

We make about 20% gross profit before expenses. When we've taken off all the running costs we're left with around 8% of our total turnover. From this 8%, we pay 15% of it to the guy on profit share and put aside 22% from what's left for corporation tax. Then we look at what we think the cash flow needs of the biz will be over the coming period and put that aside and finally we see what we think we should put away for a rainy day into reserves. If there's anything left over we might pay ourselves a dividend but often don't for fear that something will happen we haven't thought about. I'm happy to put numbers into this if any one's interested but I hope the point is made. What's interesting is how often I seem to end up explaining this to people. Is it really only people who run their own businesses who really get it?