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fblandscape
06-15-2003, 03:30 AM
I was just wondering what an obtainable amount is for a President or CEO of a company to allot for him or her self for each crew that goes out that they are not on. So let's say you have 3 or 4 crews out each day. What could you reasonably say you were going to take from each crew for yourself, before profit? $100? $200? $300?

rodfather
06-15-2003, 09:24 AM
I take a flat % of the Total Income from mowing only. Therefore, my income will change monthly.

Mueller Landscape Inc
06-15-2003, 07:10 PM
You should talk with your accountant and figure out what the average the IRS would consider "normal" for your type of work in your area. I assume you are trying to figure out what your base salary should be, that you will be paying SS on. Once you know your base salary, you can take the rest as paid dividends and save on that SS tax. :)

fblandscape
06-17-2003, 07:24 PM
In all honesty, I was really curious if it is possible to make as a President, $100,000 or more a year running 3 - 5 crews each day?

LawnLad
06-17-2003, 11:14 PM
Sure, why not!? Here are a couple of rough numbers. Figure an installation company might make sales of $90 to $120 per crew member figuring a full season/year. Remember there are higher cost of goods sold in installation. Maintenance companies may be more in the neighborhood of $50 to $80 K per crew member per year.

These numbers are really rough and will vary depending the market, type of company, customer niche/focus, etc.

If you figure 3 to 5 crews of 2 or 3 men, here's your math figuring the owner is taking his salary as an administrative expense. Administrative expenses including office help not exceeding 10% of revenue. So figure 7% for the owner.

3 crews x 2 men @ $75 K/man = $450 K x 7% = $31,500
3 crews x 3 men @ $75 K/man = $675 K x 7% = $47,250
4 crews x 2 men @ ....
4 crews x 3 men @ ....
5 crews x 2 men @ $75 K/man = $750 K x 7% = $52,500
5 crews x 3 men @ $75 K/man = $1,125 K x 7% = $78,750

Adjust the numbers for annual revenue per crew member or the number of crews, etc. and you'll see a picture for your company develop.

Keep in mind that I did not factor in profit in this scenario. The 7% wages are administrative expenses. If you can turn a 10% profit on $750 K, that's another $75,000.

I didn't include profit in the owner's salary since profit goes towards the following:
1) Taxes
2) Debt reduction
3) Capital replacement
4) Capital investment
5) Increased working captial as business grows
6) Bonuses

$75,000 will go pretty quick, so the more money you take out for additional profit means less money in the business for reinvestment to grow.

Also remember that growing requires a lot of cash. Grow to quick and you'll find that you're short on cash. Rule of thumb is to have 10% of sales in your bank account for working capital. That would mean $75,000 in cash on hand to pay bills/payroll, etc. Take the money in bonuses as you grow and you'll feel the pinch.

Green in Idaho
06-18-2003, 01:21 PM
Originally posted by LawnLad

I didn't include profit in the owner's salary since profit goes towards the following:
1) Taxes
2) Debt reduction
3) Capital replacement
4) Capital investment
5) Increased working captial as business grows
6) Bonuses


????
Profit is what you have AFTER all those except #5.

Odd that the one person get all the 7% administrative expenses. Five crews would most likely require more than 1 person to support them- Probably 2. One office/one field.

LawnLad
06-18-2003, 02:13 PM
If Bruces or someone else is watching, correct me if I'm wrong. But Profit can be defined in many ways. You have Gross Profit which is similar to Gross Margin which is also similar to Contribution Margin. You have net income before taxes and net income after taxes.

For my example earlier I was stating net income before taxes, what typically shows at the bottom of your income statement before taxes are figured.

Regarding owner salary - I mentioned that administrative salary should not exceed 10%. I was leaving 3% for administrative support, hence the 7% for the owner. If the owner is doing it all, then heck, take the 10% if you can afford it. General rule of thumb is one full time office administrator (beyond owner/sales person) is required for every $1 mil in sales, or 4% ish at $40,000 per year in expense.

Regarding each of the items listed below for which Profit covers:

1) Taxes

Income tax is not a business expense item. Your taxes are calculated after all other expenses, what is left is paid for from profit. You do not get to deduct your tax payment as an expense.

2) Debt reduction

When you take out a loan payment for a truck you depreciate the value of the truck. You only expense the interest. The principal on the loan that you pay back is paid from profit. From a cash flow point of view you can add back in depreciation to determine your real cash flow, but its not an expense.

3) Capital replacement

Purchasing larger equipment that is not expensed in the year it was purchased comes from profit. You then depreciate the value of the equipment over its useful life. Smaller equipment, generally under $500.00 is expensed.

4) Capital investment

Purchasing new equipment, land or buildings is depreciated or ammoritized. New capital investment from growth comes out of profit since it is not expensed.

5) Increased working captial as business grows

Saving money to put aside and have increased working capital comes from profit. Its not an expense item.

6) Bonuses

Bonuses to employees that are paid a payroll expense are expensed. As far as I know contributions to 401's, IRA's and bonuses paid to the share holders or others are not expensed.