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  #121  
Old 01-25-2012, 06:30 PM
gscapes gscapes is offline
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People shouldn't include their salary in their profits. You are an employee too. If you were not running the business yourself, you would have to pay someone a salary. Profit is whats left over after all business expenses including your personal salary. When i look at my profits for the year, my salary isn't part of that profit. I'm a paid employee because if im not doing the work, i have to pay someone to do it.
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  #122  
Old 01-25-2012, 06:36 PM
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Landscraper1 Landscraper1 is online now
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Quote:
Originally Posted by gscapes View Post
People shouldn't include their salary in their profits. You are an employee too. If you were not running the business yourself, you would have to pay someone a salary. Profit is whats left over after all business expenses including your personal salary. When i look at my profits for the year, my salary isn't part of that profit. I'm a paid employee because if im not doing the work, i have to pay someone to do it.
Who's including their salary in thier profits???
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  #123  
Old 01-25-2012, 06:38 PM
gscapes gscapes is offline
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Most of the people on here think that their salary is included in their profits
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  #124  
Old 01-25-2012, 09:33 PM
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JimLewis JimLewis is offline
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People shouldn't include their salary in their profits. You are an employee too. If you were not running the business yourself, you would have to pay someone a salary.
The salary I would pay someone to run our company would be a whole lot less than what I make, I guarantee you that. And he'd still be making 6 figures. But the salary I pay myself is way beyond what most company managers would ever make. So that statement is not accurate. That is a bad analogy. As an owner, I take money in two ways. One is salary. The other is in owner capital (the return I get on the investment I've made in building my business.) If I hired someone to do this for me, they'd just make the salary. And even that would be smaller than my base salary.

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Profit is whats left over after all business expenses including your personal salary.
Then by that standard, you would look at my company and say we weren't very profitable. Because although we brought in over $2Mil in revenue last year, I didn't leave much of that in the company bank account at the end of the year. A lot of it went to my salary and a lot of it went into investing in newer trucks, more equipment, new trailers, a new shop, etc. So if you were just looking at our company "profit" the way you look at it, we wouldn't be very profitable. But if you took out my salary and all of the investments I made into more trucks and equipment and shop and so forth (that I didn't necessarily have to buy) then our company would all of a sudden look VERY profitable.

If you're just counting what's left in the bank at year end and counting that as profit, you're all screwed up. I'm sorry. But the fact is it's much more complex than that.
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  #125  
Old 01-25-2012, 10:24 PM
gscapes gscapes is offline
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So how much of that new equipment you bought was to replace older equipment, equipment that you have depreciated in value. Idk about all you but my equipment depreciates each year but I keep it in he'll of good shape.
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  #126  
Old 01-25-2012, 10:28 PM
gscapes gscapes is offline
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Okay you leave your company you think one persons Gunna replace you. Personally if I left my company I'd have to hire two people to do my job at a very high salary. Not saying the two people I'd hire to take my job over would be idiots but I'm sure they wouldn't be has efficient has I was
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  #127  
Old 01-25-2012, 11:05 PM
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JimLewis JimLewis is offline
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Put it this way, let's say I am looking at two different companies:

Company A: $2Mil. in total sales. $300K in owner salary. They spent $50K on upgrading the company trucks and equipment that year. Only $20k was left in the bank after all this.

Company B: $2Mil. in total sales. $75K in owner salary. $50K invested in upgrading trucks and equipment that year. And $50,000 left in the bank account after all this.

In this scenario, you'd consider Company B to be more 150% more "profitable". But that company would be a bad investment compared with Company A.

Company A really had a profit of $370K to work with (after necessary expensese). The owner just chose to hog a lot of that for himself. But this company is still making a whole lot more extra money - or profit - than Company B is. Over 2x more money, in fact!!!

With your method, profit is totally subjective. Some owners (as in the Company A scenario) may chose to hog a lot of the company profit for themselves. That doesn't mean the company is less profitable. It just means the owner is keeping a lot higher % of the profits for himself. So the way I look at it is less subjective. You take owner salary out of the equation and just look at how much money is left after labor, materials, overhead, and other necessary expenses. Then what's left is what you consider profit. Then you can compare one company to another equally.
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  #128  
Old 01-26-2012, 12:30 AM
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BINKY1902 BINKY1902 is offline
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In a proprietorship, owner withdrawals cannot be written off as a salary expense. Drawing is a reduction in capital, which is the amount the owner has invested in the business. Net income is the taxable amount. Revenues minus expenses equal net income. If owner withdrawals are subtracted from revenues along with expenses, net income will be understated. A salary paid to an employee can be expensed, but the owner cannot expense the capital he takes out of the business.
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  #129  
Old 01-26-2012, 12:58 AM
gscapes gscapes is offline
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So your telling me if you had an accounting company come audit you, they would include the owners salary has profits? Because although there may only be one shareholder in the inc.,end of the year profits and CEO salary are not added together to give the companies total profits for the year when you have a accounting firm audit you. So yes in your post according to a tax audit of the two companies, company B is more profitable because you are not your company, your company is basicly its own person, and you own that person. But the CEO who owns 100% of stock in company A is a lot richer (Because his salary is a lot higher) than company B whos CEO owns 100% of stock of company B. Company B will look more profitable for many different reasons. Company A may be doing the job of 2.5 people and working 75-80 hours in peak seaons(maybe even half the year). He may be doing the job for 2.5 people while company B CEO is working 20 hours (maybe even less in the slow months) a week and has two extra people making working, one making $135,000 working 50 hours( VP, Operation manager, General manager) year round and another person making $90,000 a year working an average of 45 hours a year. (more hours in the busy season and less hours in the slow season). There can be many vairables that goes into this. But just because one CEO makes more money off his company than another CEO, and the company with the higher profit at the end of the year (just profit, Not your wack idea of profit) is the company with the lower paid CEO doesnt mean the company with the highest paid CEO is the most profitable.
Sorry for the long responce but your are actually the screwed up business owner that thinks profits are CEO salary plus end of the year profits
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  #130  
Old 01-26-2012, 01:21 AM
gscapes gscapes is offline
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Yes you are correct Binky! Learned that before i got my four year management business degree. But i am a corporation not sole proprietor so that means i am an employee of that corportation, and my title is CEO! Just a question, either of you go to college? And Jim, a Guy who runs a company your size for 16 years should know that if your company is incorportated than you are an employee of your company even if your title is all these CEO, CFO, President, VP and own 100% of the shares of stock for your company
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