KLE 120: How Much Should You Take Out Of Your Business
Now that you know where your business expansion capital is likely to come from (KLE117) – and, if you’re starting to become profitable – you’re no doubt going to want to know how much money you can take out of your business?
This is a great question, one that every business owner needs to think about, whether you decide to take that money out as salary, salary plus benefits (e.g. that nice car; that trip to an important conference in the Bahamas, etc.), or as a % of profits.
For now, let me tell you about a conversation that I had with a friend over dinner one night:
My friend said that he had a friend who owned a payday lending business – sounds a bit unsavory to me, but generates mountains of cash for him.
My friend’s point was that this guy would admit that he’s not very smart, but has a very simple system for dealing with the $3 mill. (and, he says that he’s not very smart!) that his business spins off every year:
1. He gives $1 mill. to Uncle Sam
2. He invests $1 mill. (my friend didn’t ask where or how)
3. He spends $1 mill.
Simple!
But, it’s also wrong …
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Any excess amounts (i.e. that the business doesn’t need in the foreseeable future) should be moved into ‘passive investments’ outside of the business.
We’ll talk more about this in Module 4.
