I bet you calculate your numbers wrong. That’s ok, so does everyone else doing business – except the pros.
The Fundamentals
Hey there. Today I want to do a book review of the book Simple Numbers, Straight Talk, Big Profits by Greg Crabtree. Now, this book is super influential for me and my business. It’s a huge book. It’s incredibly important. It’s an accounting book and it really breaks down the numbers in the business and how to calculate your profit. This itself is something that business owners have a hard time doing. So, for you this book could be incredibly important and an absolute game changer. The reason why you want to read this book is so that your restaurant, doesn’t turn into this. (see video)
Make sure it doesn’t turn into that. Okay. So, Greg Crabtree talks about the numbers in the business, and for an owner it’s easy to get very confused about how profitable the business is. They look at their gross numbers of the business and say, “I have a million-dollar business, and that’s great.” Thing is, that doesn’t matter at all. If you’re spending $1.2 million to bring in $1 million, then you’re going to be out of business very soon. It matters how much is left at the end of the day.
The 4 Main Components
Greg Crabtree, in his book, Simple Numbers, Straight Talk, Big Profits, talks about four main components of what you need to do to know how profitable your business actually is.
Component #1
Number one is that you need to have your taxes paid off. Taxes are supposed to be paid quarterly, but nobody does that. All of us wait and think we’re going to be able to make more money with the money would would pay taxes quarterly with. We think that if we hold out for nine months or a year until we pay taxes, it will help. It’s really a false economy. It doesn’t actually work very well, and you can’t actually calculate profit until you have your taxes paid. So, keep your taxes current.
Component #2
The second thing he talks about is paying an owner’s wage. You’re maybe running an S Corp so that you can shield some of the taxes, great. What’s very common for business owners to do is to pay themselves the lowest wage possible so they can save even more taxes. However, that skews the number with your profit. You can’t actually tell how profitable you are unless you pay yourself a real wage, meaning the wage that you would pay someone else to fully replace you. Maybe that’s $60,000 a year, maybe it’s $100, maybe it’s $160,000 a year. What would it cost to have someone completely come in and do your job, 100%? Whatever you would actually pay them, you need to pay yourself that now so that you can actually calculate profit.
Component #3
The next piece is that you need to have six months of operating expenses in the bank. A healthy business has six months of operating expenses in the bank. It’s important to have those operating expenses set aside because there can be lean times or there could be a downturn in the economy – You never know what’s going to happen there. So, if you have six months of operating expenses set aside, then you are in a very safe place and you can maneuver. It’s going to give you a great feeling about your business. You’re going to feel much more comfortable in what you can do.
Component #4
The last piece of it is to be out of debt. So, as someone who’s started a restaurant and has put passion into it, you may have taken on a lot of debt. I mean, it’s often averages $250,000, $300,000 to build out a new restaurant. You may be making huge payments every month on debt. Well, that’s fine, but you can’t actually calculate your profit until that debt is paid off.
Finally, Calculate your Profit
So, once your taxes are paid, you’re paying yourself a realistic wage of what you could replace yourself with, you have six months of operating expenses set aside in the bank, and you’ve got all of your debt paid off, then what is left is profit. According to the book the ideal profit range is between 5% and 15% after the 4 components above. If you’re bringing in less than 5%, you’re really kind of in trouble. If you’re bringing in more than 15% profit every year, then take all that you can get, okay? Especially do it now because it’s very likely that someone’s going to come in and try to knock you off. If you’re making 20% profit in the business a year and all of those numbers are also in place and correct, then you have struck a gold mine.
Chances are with your restaurant, you’re probably in the 2% to 6% profit. Ideally, you’d have all of those other things taken care of and you would be in a higher profit range, 10 to 12%.
So, those are the lessons that come from Greg Crabtree in this book Straight Talk, Simple Numbers, Big Profits, and I absolutely recommend that you get it. It’s available on Amazon. Of course, if you don’t have the time, you can get it on audio. It’ll have a PDF that you can actually upload to your phone and you can see the charts and things that are in there. Go get that book right away. It’s going to help you have a more successful restaurant.