This Profit Coaching Tip Works
As an outsourced accounting firm, we've helped hundreds of companies get out of debt. We start them with the 90/10 rule.
It works exactly how it sounds. We challenge small businesses to operate on only 90% of their monthly income, and use the remaining 10% to pay off debt and/or keep in a separate savings account.
Debt is NOT a Good Thing
Contrary to what many experts advise, we know that debt is not a good thing for a business to have. Over and over again, businesses who stay out of debt and save are positioned to grow when everyone else goes down during an economic disaster. Better to be safe than sorry, right?
When to Stop Saving
Once you save up 3 months of expenses. We'd like all of our clients to continue setting aside 10% for the entire life of the business. However, we know that this isn't always possible. If you're able to save up to 3-months worth of income then you're probably safe to stop saving for the time being. But be careful not to go back into debt.
If your monthly income is $100,000 : Operate on $90,000
$30,000 for labor
$25,000 for materials and supplies
$10,000 for your month's wage
$8,000 for marketing
$9,000 for partner payouts
$5,500 for overhead
$2,500 for minimum debt payments
$10,000 goes toward extra debt payments or straight into savings.
Once you put that money into savings, forget about it. Don't touch it. That's why we suggest creating a separate bank account completely. You want to forget it's there. You can do it.
Interested in more tips for building a profitable business?
Editor's Note: This slideshare was created using in-depth information from an article posted earlier this year. You can read the full post here.