Profit is the Reward for Risking your Time and Money

Do you get the Rewards you really Deserve?

I am all too often dealing with business owners who say their accountant told them something like:

“Don’t make too much profit – you will have to pay more tax”
“Keep your profit to a minimum – in fact, ideally try making losses”
“Great – we can use this loss to offset xxxx….”

How many times have you been advised by your Accountant to reduce your profit?

Are you REALLY worth less?

Consider your profit as the reward for the time you spend, and risk you take, in your own business.
When you contemplate what you are receiving – in the same way that Wages are paid to employees and Interest is the return for the risk of putting your money in a bank – ask yourself “Am I getting what I really deserve?”. And if the answer is “NO” then stop worrying about what goes to the tax man and start putting yourself first.
It is the job of accountants to legally “re-categorise”, shuffle and construct things to minimise your tax (that is why you pay them). Unfortunately, this often makes it difficult for you to really see what you are getting back for all your risk and effort, or to understand what you actually deserve for your effort and risk. When you take away the tax-minimising-magic are you really getting a good deal? – is the deal good enough to justify you continuing, or would you be better off if you sold up?
Want to find out..?
As an SME Business Owner you undertake 4 kinds of activities for your business and you deserve to be paid fairly for each of these:

1. Worker – doing stuff; serving customers and clients etc
2. Manager – co-ordinating stuff; making sure things run to plan and the timing and quality of goods and services are up to scratch
3. Director – deciding stuff; creating the plan, look and feel of the business including business strategy, and future directions
4. Owner – investing stuff; providing the backing, guarantees, and money to start (and often grow) the business

Rewards for taking Business Risks – How to calculate what you deserve

Time Reward

Step 1 – What do you Do?

It might be hard to actually work out exactly how much time you spend wearing each of the above hats daily, or during a single week. BUT if you look back on the last year, overall, you can most likely work out a rough average that splits up how you spend your time…

Step 2 – What are you worth?

Take these rough averages and for the time split from Step 1 and establish what you would pay someone else to do each of these three roles for you. Don’t forget to include overtime, sick leave, holiday pay and all the other benefits that your staff get (the things you most likely never take). The calculation should show less for worker wages than manager wages, and a bit more for executive wages – added together this will constitute a fair salary for your overall time.
NOTE: We not saying you should get a job elsewhere, but if you were sick what would the three part-time people needed to fulfill each role reasonably expect?

Money Reward

Step 3 – What is at Stake?

Consider how much money you have invested in you business, loans at start-up, money to buy stock & equipment, profits reinvested, being a guarantor etc etc Add up all of these to get a total and then work out a reasonable annual interest payment for making this investment. If you are not sure what “reasonable” is, use your current annual credit card rate as a guide and multiply that by the amount you have invested into your business.
NOTE: If you have borrowed money FROM the business, as well as investing money into the business, then offset any loans TO you against any loans BY you to get to a net total before calculating the interest.