Did you take out more than the business made?

A carpet cleaning company doing about $35,000 a month in sales. In December the profit and loss said the year’s profit was about $55,000.

That looks fine. It wasn’t.

The owner pays himself about $6,000 a month. That is $72,000 a year. His pay comes out as owner draws, and owner draws don’t show on the profit and loss. That is correct accounting. It also means the bottom line is not what the business can afford to pay you.

$55,000 of profit. $72,000 taken out. The business lost money this year. He said it himself on the call: count my salary as an expense and the business is worse than it looks.

The tax side makes it worse. Tax is figured on the $55,000, not on what you took. The other $17,000 still had to come from somewhere. Savings, a card, a loan, or next month’s jobs.

So I ran the math the other way around. With his pay included, he needs $31,500 a month just to break even. At 22 working days a month, that is $1,431 a day.

That number is more useful to him than any report I send. He can look at the schedule on a Tuesday morning and know whether the day covers itself.

The same review showed where the gap came from. Overhead was about $18,000 a month on $35,000 of sales. In his words, absurd for a business that size.

What to do before year end:

1. Add up everything you took from the business this year. Draws, payroll to yourself, personal charges.
2. Put it next to the profit on your profit and loss.
3. If what you took is bigger, the difference came from somewhere. Find out where.
4. Work out your break-even with your own pay included. Divide by working days.
5. Write that daily number where you see it.

In QuickBooks Online, click the gear icon, then Chart of accounts. Find your owner draws or distributions account and click Run report. Set the dates to this year. Put that total next to net income on your Profit and Loss for the same dates. If the draws are bigger, the business paid you money it didn’t make.

If you don’t know what your business needs per day, start the 5-minute intake.