What do you consider an acceptable net to gross ratio...

Discussion in 'Lawn Mowing' started by Doster's L & L, Feb 7, 2005.

  1. Doster's L & L

    Doster's L & L LawnSite Senior Member
    Posts: 616

    ...for your yearly income?

    I just got my tax information in today and im not terribly enthused about what i have seen on my tax report.... unlike most of us, right? :D j/k This past year, was my best year as long as i've been running this small business. On the down side, i feel like i'm spinning my wheels and I'm going nowhere. Is it MY lack of money management? Is it the local economy that has kept prices low for so many years, which keeps me from making decent money? Should I even continue in business at all? These are a few questions that are bombarding me and have essentially taken away all of my motivation and drive for 2005. I hope that some of these questions will be answered according to your responses.

    Now the question.... What ratio of net income to gross income do you expect out of your business on a yearly basis. Is a 5:7, net to gross ratio satisfactory? Here are the percentages if you prefer... 71% deductible to 29% taxable income. Thanks for your help!
  2. tiedeman

    tiedeman LawnSite Fanatic
    from earth
    Posts: 8,745

    but then you have to think about your net after tax, and from what you say it sounds like it would only be around 10%, unless I am figuring something differently. Now I am just figuring it paying your tax, no tax breaks
  3. Doster's L & L

    Doster's L & L LawnSite Senior Member
    Posts: 616

    Good point tiedeman! I keep 24.3% of my total income after taxes versus the 29% before taxes.
  4. Turf Medic

    Turf Medic LawnSite Bronze Member
    Posts: 1,073

    Does the 71% include depreciation?

    Maybe you don't want to answer this in front of god and everyone else. But does the 71% include costs like cell phone, gasoline, repairs, etc, or any other costs that would be attributed to personal use? ie the occasional meal or vacation expense with family or friends that gets tossed into the business expense box.

    You would have to purchase a vehicle if you had a job that wouldn't be deductable, cell phone, computer, meals, boots, rent, lawnmower, etc aren't deductable with a regular job, but would still be an expense with or without the business.

    take a few minutes to add up the after tax income, plus the "benefits" of owning a business ie vehicle, phone etc, I'm sure you will feel a lot better
  5. Doster's L & L

    Doster's L & L LawnSite Senior Member
    Posts: 616

    Thanks for your reply Turf Medic!

    Yes, the depreciation is included. I suppose it does help out to add those little things up like the cell phone and all of the other "whatnots" that get deducted. Too bad i didnt have a business vacation to put on my taxes though. :rolleyes:

    This question may be for the guys that make (gross) $125,000 or less in a year that have been doing this for a while, and/or that have good business/money sense. What percentage do you expect to net after taxes have been paid and consider it a successful year?
  6. WhohasHelios?

    WhohasHelios? LawnSite Member
    Posts: 233

    If you are saying that after EVERYTHING, cell phone, office expenses, fuels, vehicle, r+m wages and salaries, including your own etc etc etc. and taxes on your profits you are still left with 24% of your gross sales, you are doing a helluva lot better than most businesses.

    You can even look at restaurants for a great example, most restaurants are lucky to operate at a 7 - 13 % net profit margin. Restaurants that succeed, are some pretty good businesses to be in.

    I have been in business for three years, my nets are not that great at this point, but like someone else said, I have alot of "benefits", half my rent on a basement suite is paid because I have about 50% of the rented area as an office.

    I don't know how long you have been in business, but you may also want to shift the way you look at it a bit too. Are you building a bank account, or building a BUSINESS? I know that may sound stupid, but they are very different things, and you need to know which you are striving to accomplish.

    Losing for a bit to get started, breaking even for a bit after that, and then making $$$ is a normal sequence of events.
  7. Doster's L & L

    Doster's L & L LawnSite Senior Member
    Posts: 616


    I have been in business for myself for 6 yrs. I think i may do differently than some guys on here do. I dont "pay myself" out of a business account. i just use what i need, when i need it at any given point through out the year. Anything that is left over at the end is mine. What i do to see what i've made is to actually do my taxes at the end of the year. I dont have a computer program that i can put all of my business transactions into to see how im performing financially from week to week. However, i am considering purchasing one of those now!

    I know what you're talking about. That is a good point that you make! The kicker is, when all of the stuff is paid for (trucks, mowers, spray equip) what is left? A truck that is no longer attractive and has lost a large amount of its value, a mower that is needing some repairs of its own, etc. So now it's time to purchase more new equipment/trucks. This is the biggest part that has gotten me down and makes me think that i am spinning my wheels. Now, if i were the kind that loves to ride around in old rust bucket pick-ups, running wretched old lawnmowers, then i dont think i would be complaining any at all because my stuff would finally be paid off and id be making clear money, BUT i like to have the nice professional looking 1yr old used F150 XL and the brand new Exmark ztr's. I'm big on image and looking professional as well as BEING professional. But after the 5 yr loan is up, im left with a 6 yr old pickup that's needing to be upgraded to the new model year minus a year... Ditto for the mowers. Thus the payment cycle continues again! :dizzy: I suppose that it's not all as bad as i've been making it out to be. These older lawn guys around here are gonna be retiring soon, so here's to the good life where the bills dont stop coming, but the grass keeps growing. :drinkup:
  8. WhohasHelios?

    WhohasHelios? LawnSite Member
    Posts: 233

    Fair enough, I do appreciate and understand the way you run your business, and yes, it is certainly different in some fundamental ways from how I do mine. I am also incorporated, that may make a difference in a lot of the ways I do things as well.

    I guess without doing books and having a seperate bank for business funds this would be difficult to do, but might I suggest trying paying yourself a regular salary from the business as it is a deductible expense for payroll.

    And if you look at it in that you get your salary to cover YOUR living expenses, and you are still building a business. Than the objective at the end of the year is to retain as little as possible. This is a fully legal and respectable way of conducting business: Deduct ALL that you can within your available parameters.

    Cheers =)
  9. T.E.

    T.E. LawnSite Senior Member
    Posts: 799

    After all of my expenses thru 12/31/04 ,40% of my total gross was taxable.
  10. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Posts: 1,847

    if you are saying your pretax profits are 29% and that doesnt include a salary for yourself, id say you arnt doing too well.

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