Jacksonville CPA | Leading By Example
So let’s talk today first, welcome back to the podcast. It’s May 31st and it couldn’t be better. So we talked about knowing your numbers, having your salary camp, um, you know, and just to kind of give you a said, we would go over some ratios, you know, you need to maintain a minimum pretax profit of 10 percent or greater as you grow to the $5,000,000 revenue level, um, and leave any profits after taxes in the business to fund the growth instead of relying on debt or outside capital. You know, as Dave Ramsey says, debt is dumb, cash is king.
If you don’t have a Jacksonville CPA is telling you this, you need to come over to my neighbor and let us help you. And you know, just recapping here, you need to maximize productivity of your labor. And, and in the accounting world, we have something called scope creep as it relates to a client, which means the client is having you to do more and more work, which is outside of the scope that you originally agreed to. So there’s also something called Labor creep. And as I talked, as we talked, when you need to have a salary cap number and you need to stick to that and don’t hire someone for something that you can do in the early stages, figuring out what you can outsource and refine your management team. So, and we talked in earlier, podcasts, have maintaining and including a market based wage for yourself. If you don’t do that, it’s going to really skew your profit numbers. And if you’re, if you’re outside gone past your salary cap, you need to decide what you need to do about it. You know, are you gonna you gonna hold. It may be that you’re in one of those, you know, you just, you here. Here’s what you should be doing. Everyone should be doing 30 percent more work than they should before you hire someone. Those, you know, as a business, as growing, it’s kind of, it’s kind of hard to, to make sure your, your salary cap,
A stage where it’s where it should. So you know, you need, but you need to measure this and you need to look. If you are exceeding your salary cap, you need to figure out what you’re going to do about it or you know you’re going to hold your way just constant until you hit that profit number. If you know you have more customers coming in, are you going to hold that, that number of employees constant until you, until you hit us unacceptable range. Or are you going to cut staff, um, or you may, you may need to do some of both. So, but you need to figure out what you’re going to do about it. And you need to get to 15 percent pretax profit before you raise your salary cap.
So if you have a Jacksonville CPA that’s not telling you this, then you need to come to them. And Eva, and let’s talk about the difference between cash and profit here. So many small businesses use the cash method of accounting. So what that means is when cash comes in you, you’re recognize it as income. When cash goes out, you recognize it as an expense. Most as you get to a certain level, you should probably be using following the generally accepted accounting principles. And using the accrual method, which basically means the, the whole concept of accrual is to match income and expenses into the right period. So, you know, you may invoice a customer and you know, your revenue, you may have the voice of customer thousand dollars, so your revenue is thousand dollars and they put down a 50 percent deposit. Cash is only 500. So cash is a lagging indicator and profit as a leading indicator. So you know, you need to, you need to realize this. So if you don’t have a Jacksonville CPA that’s helping you through these things, then you need to give me a call. So you know, let’s, let’s give an example. Let’s figure the following about each example. Let’s figure a plumbing business that brings in, you know, a 1 million, $200,000 in revenue every year. And by the time they take into consideration taxes,
state taxes, income tax, payroll tax, blah blah, blah, their tax rate is 40 percent. This companies spending money on its operating costs for a month and then they send invoices at the end of the month, the next month. I do the same, by the middle of the third month, they finally get paid for the first month’s invoices. That’s, that is the billing cycle in and most of the world. So you bill at the end of the month and it takes 45 days to get paid. So this business in this example is immediately $95,000 in the negative for the first month. They go close to a couple hundred thousand in the hole before, before they start earning their way out of it. So if you change that, that is at, and I apologize here, just have things scheduled or I’m writing things down. It’s kind of hard to show here on a podcast, but maybe I’ll start making show notes. Um, you know, if you’re tired of, of a Jacksonville CPA that’s not being proactive and helping you find the information you need to run your business, you need to give them an eva call. So, you know, if you change the example I’m giving here is um, profit versus cash at five percent, 10 percent, 15 percent profit margin or pretax profit.
You know, the next example at 10 percent. Oh, they’re your profit may look great, but the company’s still 200,000 in the hole and you know that you’re hitting a breakeven point in this case about 33 months instead of 60 plus months and oh, they changed. It was one thing they made all their business businesses, business decisions, and this is so important. If you don’t know your numbers, you’re not making your business decisions based on those numbers. Okay? So if you take 15 percent profit, the same thing happens with your pretax. Profits are much, much bigger. You still fall into the initial hole, but you know, you crossed a break even point much quicker. So you know, you can see in these examples, you can see that you’re going to need to hit at least 10 percent pretax profit.
So you know, for business, a plumbing business at $7,000,000 in revenue, that’s $100,000. And this is why profit matters. You know, every business is going to, to have that cash deficit told in the beginning, just a matter of how quickly you can come out of it. There are only three ways to remedy that. You can borrow money, which is not, as Dave Ramsey says, debt is dumb. Cassius cane, you know, you can cover it with your elbow grease, sweat, equity, you know, instead of getting your market base wage, you lower that town, know your market base wage, maybe a 70, so you pay yourself 40 and uh, you cut back. But you know, you don’t want to live like that. You know, if your market based way, just 70 and uh, you’re only getting paid 40. No, I’m not gonna stand for that for a very long period of time. So you don’t have a Jacksonville CPA that’s helping you through these things. You need to give Dave a call. Um, and then the third thing is you can get an outside investor, I’m sure going to have to repay that investor and it’s going to get, they’re going to be over. You’re looking over your back and you know, the other thing is to fund it with your own cash. But Jacksonville CPA let’s, I’m going to pause and we’re going to go to the next segment.