Profits are the “variable paycheck” for a professional or entrepreneur who stuck his/her neck out to create a business and jobs. Often they make more than employees, but…
I remember my shock as a young consultant when I discovered that a new client was having to put $5,000/week from personal savings into his business. My first thought was, “I wouldn’t keep showing up if I had to pay to work there.”
Owners can get a “negative paycheck” where they lose money or even go bankrupt and lose everything. So why would anyone do it?
By taking this risk, they gain the potential of making more than an employee can make – if they’re successful. That’s why the owner usually works longer, harder and smarter than employees.
Bonus System / Profit Sharing
I highly recommend every business have a bonus system or profit sharing that provides employees some of the positive benefits (and motivation) of ownership – without the downsides. This is a fascinating subject I’ll deal with in a future newsletter.
Bottom line if you’re an employee, the boss is paying your salary (plus about 25% more in taxes, etc.) instead of putting that money into his/her personal pocket. Why?
They’ve got the (sometimes mistaken) idea that you’ll contribute more to the business than all your costs, like salary, office supplies, rent, utilities, taxes, Social Security contribution, health insurance, 401K, etc. If you do, they’ll have profits so they’ll get a paycheck, too.
Accounting Approach to Profits
Accountants figure profits like this. Put all the money that comes into the business or professional practice into the bank. Use that to pay all the bills. Then whatever is left over is profit (or loss, if there’s not enough to cover the bills).
There are times when this isn’t the smart way to go.
How to Have Profits TODAY
One way to ensure you have profits is to pay yourself first. Off the top.
If you do that, you’d better be putting quite a bit into reserves. Don’t go to Las Vegas with that money (or the investment equivalent of Vegas).
Put it into increasing your abilities, or someplace where at least a good part of the money can be recovered in a dire emergency. Pay cash for something that will retain its value. You could sell or borrow against it in a pinch, so you’ve got a safety net.
Now get busy and pay the rent!
Most business owners work far harder to pay the rent and cover payroll than to create a profit for themselves. Don’t push this approach too far too fast, but try reversing the accountant approach to profits and watch your ingenuity and problem-solving ability skyrocket!
Let me help you create a bonus 
