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JbNormandog

JbNormandog

SGF, Supreme Grumble Framer
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Hi all,

I have been open about 1 and 1/2 years and am at the point where the shops pays for itself (most of the time) and my truck and gas.

I haven't pulled any money out yet because there isn't a lot to pull and when there is it usually goes towards next months bills.

Every thing I read prior to opening said a new business can take 2-5 years before becoming profitable.

Overall I think I am in good shape but, wanted to know aproximately how long you were in business before you got a check from the business proceeds and not from a business loan.

Their is a business a few doors down that said if it hasn't happened in the first 6 months close up. I think he is nuts and doesn't have a great outlook on things most of the time anyway but his comment got me thinking.

From what I said am I being realistic that things are ok or am I kidding myself and you all got paid within a few months of opening?

I read on a post long ago that some one said they made a check from day one but don't know how realistic that is.

I would love to hear about your experience and look forward to what you post.

Thanks all.
 
If start-up cost is averaged over a period of years -- such as a loan payback period, then it is possible for a new business start-up to show a profit almost immediately. That is, all of the expenses and payroll are covered, and a profit is the money left over.

So, how do you account for the start-up costs? Should you consider that the business makes its first profit only after all of the start-up expenses are paid off? If so, then yes, that might be a period of years. Or should the money left after paying monthly bills, including start-up loan payback, be called profit? If so, then profit may come right away.
 
Jim-I think a better litmus test might be to determine when you get a regular paycheck. We often hear of owners/operators forgoing regular paychecks and that means not only timely as regular, but also in amounts of compensation.

To defer paychecks to have a "profit" is pretty silly. This ain't no Enron Accounting deal

To answer your question, for the first several months I would sit down with my wife and ask exactly how much money did she need to pay our personal bills. That is th echeck I would draw

Today, if I asked the same question, I suspect that she might think my name was Trump

I can't remember exactly, but we opened in June (84) so I am pretty sure that 6 months sounds about right
 
Thanks Jim and Bob,

Jim I didn't necessarily mean when did the loan get paid off as much as when were you comfortably paying all the bills and when you started to regularly draw a check from whatever was leftover after the bills.

Just wondering where I stand compared to other upstarts.
 
Hey Dog-While it's important to always guage your biz against others, it's more important to measure against your own expectations. Do budgets and measure success accordingly

As on any long trip, it is just as important on quickly you get there as it is on how well you get there

When you did your Pro-Formas, when did you project to reach the level you are seeking? Your ability to accurately "predict" and adjust will pay greater dividends than most everything else as you grow your biz

But, after 18 months, you are still Bullish and growing then you are definitely driving on the right side of the road
 
Originally posted by JbNormandog:
...I didn't necessarily mean when did the loan get paid off as much as when were you comfortably paying all the bills and when you started to regularly draw a check from whatever was leftover after the bills....
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I believe that it is important to include your own paycheck into the "comfortably paying all the bills". Each of us deserves to be compensated for our efforts.

To Bob's point, you might need to determine what that minimum amount might be, and it will certainly be less than desireable during the first 5 years, but it should exist none-the-less, and it should be paid first! We should not be waiting for the "leftovers".

If the business does not generate enough cash flow to pay all of these expenses, then creative measures should be taken, to keep the business moving ahead.

Ours was one of those businesses that drew a paycheck from Day One. If what we draw now was taken back in 1978, it would have been considered criminal neglect and I wouldn't be in business today. :D

So to answer your question, I believe that a small paycheck should be paid the owner from the beginning, and that an upstart new frame shop will probably take 3-5 years to establish itself, dependent upon local demographics, location and the economic cycles at the time.

Obviously, as the business matures, then compensation to the owners can be increased accordingly.

John
 
Duplicate
 
One point I haven't seen regarding owner compensation: I don't intend to ever take a paycheck from the store. If you take a paycheck you pay payroll taxes, medicare, etc. Since my corporation holds the business, I will wait till the end of the year and take my cut as a dividend. Capital gains are only taxed at 15%. Of course this is only possible because we can afford to live off of Lisa's paycheck in the interim.
 
Originally posted by Bob Carter:
To answer your question, for the first several months I would sit down with my wife and ask exactly how much money did she need to pay our personal bills. That is th echeck I would draw
QUOTE]

Dog, I have been in biz for 1 1/2 yrs as well and I started to do what Bob suggests after my third month. It was in my initial plan to have to be able to afford a modest salary after 3 months. It is not always easy to do, as a matter of fact at the begining of every month I get a little edgy about taking the money out, but then the mortgage bill gets to the top of the pile at home... I suddenly feel better abuot taking my pay-check.

OHHHH, It's almost the first of the month again isn't it? I used to look forward to getting payed (Whn I worked for someone else). Of course someone else worried about whether there was enough to cover payroll, not me.

But hey, that's the sacrifice you make to run a major corporation. :D
Click to expand...
 
Originally posted by JbNormandog:
Thanks Jim and Bob,

Jim I didn't necessarily mean when did the loan get paid off as much as when were you comfortably paying all the bills and when you started to regularly draw a check from whatever was leftover after the bills...
Click to expand...
Some have testified that they didn't take any income for some time. I believe that the owner's salary should be planned and regularly paid right from the start. I have received a paycheck every payday since our first month in 1989.

Note that my paycheck is not a big one; I choose to take most of my income from the company in owner's withdrawals, which are not subject to the same taxes and fees that accompany regular wages. And that income varies with monthly sales. Sometimes it is modest and sometimes it is non-existent. :rolleyes: I'm still saving for the Z3-M I've been oogling since 2000.
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As a sole proprietor, maybe the distribution of income isn't important. But as a Subchapter-S corporation, IMHO, it is unwise to share a significant net profit with government agencies at the end of an accounting period. One way or another, profit dollars go away as expenses, investments in shop equipment, or pay.
 
Jim,
Sure, you want to take every possible personal expense you can before profits are paid. I would just rather pay a 15% capital gains tax than all the associated expense as an employee. IE: Workers Comp Insurance, Medicare, Social Security, Federal Unemployment, State taxes, etc. It is easy to lose 30% or even more if you go that route.
 
Our business turned a modest profit after year 3. We have been in business for five years and there was a time in the beginning where we went without a paycheck for four months due to poor planning (wrong business model). We learned our lesson, though. As Jim stated, we plan for our salaries in our yearly projections and have a clear idea of our break even point each month. If we have a good month, any extra will go towards investing in the growth of the store (new equipment, extra advertising, direct mail pieces). At the end of the year, we look at how much extra we have and contribute to SEP's to help with the tax burden.
As an LLC, any profits are split between the partners and claimed on our personal returns, so it may say we made x amount of dollars in profit, but it doesn't always translate in our personal accounts, mainly because we did re-invest those dollars in the business.
Hope this helps!
Regards,
Julia
 
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