Once you go past $1 million, your biggest challenge is getting the required productivity for every dollar you spend on labor. I refer to labor dollars instead of full-time equivalent (FTE) employees, because counting heads does not give you the proper understanding of your true profit model. Focus on your gross profit per labor dollar as your key

Maintain a minimum pretax profit of 10 percent or greater as you grow to the $5 million revenue level, and leave any profits after taxes in the business to fund the growth instead of relying on debt or outside capital. To maximize your productivity of labor, avoid labor creep, and don’t hire an employee for a function that you can do. Consider what

Use regularly updated forecasts instead of budgets. Budgets are a license to spend, forecasts are a license to make profit. Keep your forecast at high level. Detailed forecasts do not encourage regular updating, and they’ll take so much time to maintain that you won’t have time to evaluate them. Evaluate your key metrics to understand the movement

You need to get the most productivity for your labor dollars, and that includes your own salary. As entrepreneurs, we all want our businesses to work. But if you’re going to fly in for two days a month and still draw a full salary, you’re lying to yourself, so quit taking a salary out of the business. There’s nothing wrong with being an investor

Quick Tips About QuickBooks There are some great features in QuickBooks for producing P&L statements. You can set roll-up points for your key seven or eight lines of data we talked about earlier, then you can expand them for more detail or collapse them to see just those seven or eight lines. First look at the collapsed view across time and see if

By focusing on gross profit instead of revenue, most businesses from any industry can be compared side to side. For instance, I can take a service-based business and compare it to a retailer, and then I can compare the retailer to a building contractor. I can compare the building contractor to a government contractor because when I sell materials,

Knowing the economic value of your business gives you a baseline to make decisions about either selling or keeping your business. The fair market value of your business sets the baseline for decisions in 50/50 shareholder deals. Generally, if you can buy out your partner for less than the economic value, you should take the deal. If your partner is

Pretax profit is your earnings before taxes. That is the revenue-generating activity that your business produces for your benefit. In most of the businesses I work with, interest, depreciation, and amortization are real numbers, so it’s important to understand that you should ignore EBITDA and focus on your pretax profit.

Find your reporting rhythm and hold your