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  #111  
Old 01-23-2012, 07:26 PM
FoghornLeghorn FoghornLeghorn is offline
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Jim, articulate as always. Thanks for sharing.
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  #112  
Old 01-23-2012, 07:34 PM
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tyler_mott85 tyler_mott85 is offline
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Quote:
Originally Posted by JimLewis View Post
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I think a more accurate definition of profit is what you have left over after all of the company expenses are paid for [before owner salary]. Then, what you do with that profit is your business.

Let's say Company A grosses $1Mil a year in sales. After all business expenses, the company has $200,000 left over. The owner decides to leave $50,000 in the company account and pay himself a salary of $150,000.

Let's say Company B also grosses $1Mil a year in sales. After all expenses the company has $200,000 left over. This owner decides to leave $120,000 in the company account and only takes a salary of $80,000.

In either case, the profit of the company is basically $200,000. It's just been divvied up differently. That's the number that someone looking to purchase the company is going to look at - the $200,000. Because that's the number that the buyer has to work with. Then the buyer can decide how he wants to divvy that money up after he purchases the company. He's not going to be too concerned with what the previous owner's salary was. Because he is going to chose to do that differently. He's just going to be concerned with the gross profit (before owner salary).

This is the way we should look at it too. If we just looked at Company A having a profit of $50K and Company B as having a profit of $120K, that would be an erroneous assessment. Each company had a true profit of $200K. It's just what they did with that $200K that is different.
I agree 100% with this for a Sole Proprietorship or Partnership business.
The reason I stated that there are different ways of setting up a business is to take into account the differences between your way of looking at profit and the way a Corporation would look at it.

Take a large national corporation. When they talk about profit margin they are looking at the money they have after they pay everyone. CEO, President, etc.

I realize the large majority of users of LS or going to fall under the Sole Proprietorship and they are going to be taxed on the "profit" they show before they pay themselves anything.

Either way, this thread is a great read.
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  #113  
Old 01-23-2012, 10:47 PM
Az Gardener Az Gardener is offline
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I will reluctantly admit to grossing over 500-k per year, mostly to encourage other larger companies to contribute. This board has gotten so big but there are so few bigger businesses contributing that it is hardly worth the time for me to wade through everything to learn anything new myself. I don't mind sharing what I have learned but I have posted most of it over the years. Its all there if you're of a mind to use the search feature.

Ideal thank you for your contribution it has given me reason to come back around more.
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  #114  
Old 01-24-2012, 12:48 AM
gscapes gscapes is offline
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i look a profits this way. company grosses 1 million. After all buisness expenses, $200,000 is left over. My salery is a business expense ( if i didnt do my job, i'd have to pay someone to do it!) Then, on average for every million my company brings in we put 5% back into the company (everyone equipment depreciates each year). So i put 50,000 of that 200,000 back into my company, my profit is 150,000.
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  #115  
Old 01-24-2012, 12:51 AM
gscapes gscapes is offline
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Quote:
Originally Posted by JimLewis View Post
Close...

I think a more accurate definition of profit is what you have left over after all of the company expenses are paid for [before owner salary]. Then, what you do with that profit is your business.

Let's say Company A grosses $1Mil a year in sales. After all business expenses, the company has $200,000 left over. The owner decides to leave $50,000 in the company account and pay himself a salary of $150,000.

Let's say Company B also grosses $1Mil a year in sales. After all expenses the company has $200,000 left over. This owner decides to leave $120,000 in the company account and only takes a salary of $80,000.

In either case, the profit of the company is basically $200,000. It's just been divvied up differently. That's the number that someone looking to purchase the company is going to look at - the $200,000. Because that's the number that the buyer has to work with. Then the buyer can decide how he wants to divvy that money up after he purchases the company. He's not going to be too concerned with what the previous owner's salary was. Because he is going to chose to do that differently. He's just going to be concerned with the gross profit (before owner salary).

This is the way we should look at it too. If we just looked at Company A having a profit of $50K and Company B as having a profit of $120K, that would be an erroneous assessment. Each company had a true profit of $200K. It's just what they did with that $200K that is different.




i look a profits this way. company grosses 1 million. After all buisness expenses, $200,000 is left over. My salery is a business expense ( if i didnt do my job, i'd have to pay someone to do it!) Then, on average for every million my company brings in we put 5% back into the company (everyone equipment depreciates each year). So i put 50,000 of that 200,000 back into my company, my profit is 150,000.
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  #116  
Old 01-24-2012, 05:18 PM
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Landscraper1 Landscraper1 is offline
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Profit is a funny indicator of a successful business. I am the sole owner of a landscape business that is incorporated. As far as finances are concerned, I try to be slightly profitable. The more profit you end the year at, the more crazy taxes you will pay. In a good year my main concern in Nov - Dec is, how to lower that profit before the end of year.
This year I purchased a 2012 Chevy 2500HD, with a SS FIsher V plow, a slightly used S250 Bobcat, and a 2012 Honda Civic for my 18yr old daughter(yes, it's legal). So, what would have been a very profitable year is just slightly profitable, on the books.
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  #117  
Old 01-24-2012, 09:42 PM
FoghornLeghorn FoghornLeghorn is offline
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That's the beautiful thing about being in business for yourself. You can write off a new car for a kid if they run errands for you every now and then, if they use the car to pick up dry cleaning, pay their phone bills if they ever conduct any business related conversations on it.

Heck, I formed an LLC for my boat and have my landscaping company rent it every time we take it out. We write it off as client entertainment expense. Making the tax laws work for you instead of against you is the beauty of business.
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  #118  
Old 01-25-2012, 12:38 AM
lawn care St. Cloud, MN lawn care St. Cloud, MN is offline
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Too big too fast

Don't get too big too fast. The more you gross the more bills and much larger the bills come in. Being a small company is not a bad thing and keeps your income tax bracket more fair. Once you start getting past 150 to 200K in sales the more your going to have to work to keep gross margin at a healthy level but again it depends on your bills.


LawnXperts St. Cloud http://www.saintcloudlawncare.com
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  #119  
Old 01-25-2012, 07:45 AM
douglee25 douglee25 is offline
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Quote:
Originally Posted by FoghornLeghorn View Post
That's the beautiful thing about being in business for yourself. You can write off a new car for a kid if they run errands for you every now and then, if they use the car to pick up dry cleaning, pay their phone bills if they ever conduct any business related conversations on it.

Heck, I formed an LLC for my boat and have my landscaping company rent it every time we take it out. We write it off as client entertainment expense. Making the tax laws work for you instead of against you is the beauty of business.
Be careful with the boat stuff. Entertaining on a boat is something the IRS scrutinizes very careful.

Doug
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  #120  
Old 01-25-2012, 08:51 AM
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Landscraper1 Landscraper1 is offline
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Quote:
Originally Posted by lawn care St. Cloud, MN View Post
Don't get too big too fast. The more you gross the more bills and much larger the bills come in. Being a small company is not a bad thing and keeps your income tax bracket more fair. Once you start getting past 150 to 200K in sales the more your going to have to work to keep gross margin at a healthy level but again it depends on your bills.


LawnXperts St. Cloud http://www.saintcloudlawncare.com
Of course your bills will get higher but, so should your Income. Let's say you have a 3 man crew. You give youself a salary of $50,000. At the end of the year you profit $50,000(not including your salary). Sounds good, right?

Now, you pick up enough work to start another crew. Put in reliable employee to run your 1st crew at a salary of $30,000. You take over the new crew. If things go well you will make $50,000 profit per crew plus the savings of $20,000 from the foreman getting paid less than you were. That's now a profit of $120,000 at the end. Sounds great, right?

The numbers I used are examples but, if you play your cards right, each crew can at least double your profits.

This should be done slowly and in my personal experience, I will not grow any larger than I can control. In other words, I control my company with out much help. I am the boss, manager, estimator, salesman, mechanic, accounts payable, and I continue to work with crews when needed.
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