Mike Dolt Enterprises
Mike Dolt Enterprises
User: B W E, Location: Chapel Hill, NC
Asked on: Saturday, April 30, 2011 at 12:19 pm EDT
Answered on: Tuesday, May 14, 2024 at 4:49 am EDT
Question: I've only been in business (legally, with local business tax license, c-10 license, FEID, etc) since Dec. '10, and Im having a hard time getting into a comfortable groove with handling money after the job is done. I have one guy working for me now, so suffice it to say, I'm small scale, for now.My wife and I have no business experience and to be honest are pretty bad with (personal) money management. I'm doing much better with my business (sole prop.), using quickbooks, keeping track of all expenses, etc. However, right now I am making less than when I worked for a larger company. Thats ok though, for now, because even in this crap economy in the most business unfriendly state in the country, i am still making a profit.So, here's how I do it. I take the total income from a job, subtract materials and labor, and then owner draw 60% of the remaining amount. So, on a $1,000 job, with $250 in labor and material, I pay us $450 of the remaining $750.How do you guys do it? Am I way off?
Methods for Handling Post-Job Finances
There are several different methods businesses use to manage their finances after completing a job. Here are a few common approaches
1. Percentage of Revenue:
You are currently using this method, where you take a percentage (60%) of the remaining amount after deducting materials and labor.2. Fixed Wage or Draw
Determine a fixed hourly wage or draw for yourself and calculate the total based on the time spent on the job. This method ensures a consistent income regardless of job size or profitability.
3. Profit Margin
Calculate the profit margin (e.g., 20%) you want to maintain. Multiply the profit margin by the total job income to determine the amount to be taken as profit. The remaining amount can be used for expenses or reinvested in the business.
4. Project-Based Allocation
Allocate a specific amount of the job income to various categories, such as labor, materials, owner draw, and a contingency fund. This method ensures that all project expenses are covered and that a portion is set aside for unexpected costs.
5. Hybrid Approach
Combine multiple methods to create a customized approach that meets your specific business needs. For example, you could use a fixed wage for yourself and a profit margin for the remaining income.
Assessment of Your Method
Your current method of taking 60% of the remaining amount is not inherently wrong, but it may not be the most optimal approach. Here are some considerations: Profitability
Are you generating sufficient profit to sustain your business and personal income needs?
Consistency
Does your method provide a stable and predictable income stream?
Flexibility
Does your method allow you to adjust the owner draw amount based on project size or profitability?
Recommended Approach
Based on your current situation as a small-scale business, I would recommend exploring a hybrid approach that incorporates the following elements: Fixed Wage or Draw
Determine a reasonable hourly rate or monthly draw that covers your personal income needs.
Project-Based Allocation
Allocate a portion of the job income to cover materials, labor, and a contingency fund.
Profit Margin
Set a target profit margin and allocate the remaining income accordingly.This approach provides a balance of stability and flexibility, allowing you to maintain a consistent income while also ensuring the profitability of your business.
Additional Tips Keep accurate financial records and regularly review your income and expenses. Consider consulting with an accountant to optimize your financial management practices.* Be disciplined in tracking and managing your owner draw to avoid overspending or underinvesting in your business. Flag for review