WHAT ARE YOUR PROFITS FOR?
Your profits will result in extra cash in your bank account. That is when you have collected the Revenues ($5,000.00) for the month and paid the related Expenses ($4,000.00) for that month you will be left with your Cash From Profits ($1,000.00).
It is critical to understand that your company’s Cash From Profits are not dollars that owners should take out of the business as extra compensation or spending money.
You will need those profits for future expected and unexpected expenses. Determine how much of your business’ Cash From Profits to leave in your bank account?
HOW MUCH CASH FROM PROFITS
SHOULD YOU KEEP IN THE BANK?
1) Amount equal to your insurance deductible.
(Example – $1,000 for deductible)
2) Amount necessary to pay for expected and unexpected Repairs, Maintenance & Tires. (Example – $2,500 ($1,500 for Clutch, & $1,000 for Steer Tires)
3) Amount necessary to pay for Annual Expenses when due. (Example – $2,500 to pay for IRP, Heavy Duty & other taxes)
4) Amount necessary to cover claims not filed with insurance (Example – $2,500)
5) Amount necessary to cover bad debt write offs (Example – ?????)
6) Amount necessary to pay any Federal and State tax liabilites (that is taxes due from your business taxable income).
7) Amount set aside for rainy days. That is cash from profits to offset months in which your expenses are more than your revenue. This can occurs when you take time off for personal reasons (vacation or illness) or for time your equipment is down due to repairs.
The amounts above are only examples. You will need to determine what amounts are appropriate for your business.
Your goal is to have Cash From Profits to pay for expected and unexpected expenses.