Lesson 1
Follow a dollar all the way home
Revenue tells you what came in. It doesn’t tell you what it took. A salon with $360,000 annual sales may support less owner income than a solo practice with $180,000. If you celebrate the top line while borrowing for taxes or skipping your own pay, the celebration is hiding a question the business still has to answer: what is actually left, and whose obligations remain unfunded?
Start with revenue minus direct delivery costs: materials, commissions, subcontractors, and labor attributable to the work. Then subtract operating costs such as rent, administration, insurance, and software. Avoid counting the same wage in both categories. The remaining profit still needs careful interpretation.
Owner compensation depends on business structure. An owner’s salary may already be an expense; a draw generally is not the same thing as a deductible wage. Profit is not identical to available cash: loan principal, equipment purchases, receivables, taxes, and payment timing all matter. Confirm classifications with your bookkeeper or qualified adviser.
The calculator here deliberately simplifies those distinctions into a planning model: required profit before illustrative taxes and reserves, plus operating costs, divided by the contribution-margin share. Do not add owner pay again if you already included it in operating expenses. It is a starting estimate, not a forecast or advice about how to distribute cash.
- Revenue − direct costs = contribution available for overhead and profit in this simplified model.
- Subtract operating expenses once. Identify whether owner compensation is already included.
- Bridge profit to cash: note debt principal, capital spending, unpaid invoices, and tax payment dates outside this calculator.
Fictional case · competing duties
Leah’s $30,000 month
Leah’s repair business collects $30,000. Direct delivery costs are $12,000 and operating expenses excluding owner pay are $8,000. That leaves $10,000 before owner tax provisions and reserves. A $2,000 loan-principal payment and $3,000 equipment purchase also use cash.
- Take the apparent $10,000 and risk funding later obligations from next month’s sales.
- Model tax, reserve, debt, and capital needs before choosing a draw.
- Delay a nonessential purchase or negotiate payment timing, without confusing deferred spending with higher profit.
The simplified operating profit is $10,000, but available cash and taxable profit may differ. Payment timing can help liquidity; it does not make recurring costs vanish. No universal safe draw follows from revenue alone.
Put it to work
Using a month of records or the case figures, build a revenue-to-owner-pay bridge. List direct costs, operating costs, profit, and three cash adjustments. Mark unknowns for your adviser rather than inventing certainty.
Consider privately · optional
- Are you paying yourself from profit, accumulated cash, or money needed for an obligation that has not arrived yet?
- Which cost becomes easier to ignore because you do the work yourself?