I am compelled to share a story with you that I hear way too many times when talking with shop owners. Yes you are right, the title is a little crude but effective, so please read on. Many shop owners cash position is very weak and running very close to broke. They have an entitlement mentality: “I deserve to get paid because I am the owner.” So I set my salary no matter how well the business performs. Here is a mantra I always use: “If you are paying last month’s bills with this month’s income, you are broke.” If you don’t have sufficient working capital of three times true cost of doing business and three times true cost of doing business in reserve.
How about changing your pay plan to reflect how well your business is doing financially? Pay yourself $1,000 salary per month plus. Get paid on a percentage of gross profit if a certain gross profit percentage is met. I say modify your pay plan to reflect what you are accountable for not just because you are the owner. Then pay yourself a quarterly bonus a percentage of True Net Profit.
See this sample plan (Warning: this is just a sample! Please don’t use these numbers. You must budget to find the correct numbers for your business):
- $1,000.00 per month salary
- 4.25% of Gross Profit if *55% Gross Profit Percentage was achieved
- 4.5% of Gross Profit if *56% Gross Profit Percentage was achieved
- 4.75% of Gross Profit if *57% Gross Profit Percentage was achieved
- 5% of Gross Profit if *58% Gross Profit Percentage was achieved
- 5.25% of Gross Profit if *59% Gross Profit was achieved
- 5.5% of Gross Profit if *60% Gross Profit was achieved
- 5.75% of Gross Profit if *61% Gross Profit was achieved
(*Don’t use your POS to calculate your GP….Use your accounting system)
- Put a cap on you total pay until the 3 times rule has been met
- 5% Bonus of the True Net Profit Quarterly
Don’t be Pig at the Trough and eat up your future and financial health just because you are the owners and have control of the checkbook.
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WOW – Words of Wisdom
At age 99, Leo Plass received his college diploma from Eastern Oregon University. He had stopped working on his teaching degree during the 1930’s when he left college to earn an income in the logging industry. Seventy-nine years later, he completed the three credits necessary to graduate and resolves this important unfinished business in his life.
Worth sharing and contemplating. Well done, Leo!