theag
Legendary Contributor
FASTLANE INSIDER
EPIC CONTRIBUTOR
Read Fastlane!
Read Unscripted!
Speedway Pass
User Power
Value/Post Ratio
297%
- Jan 19, 2012
- 3,905
- 11,598
Short answer: If your business can do 10% net profit, AFTER paying yourself a full salary (at the rate you would pay someone else to do it)... you're on the right track.
Fully agreed, thats what I'm aiming for, too.
In the past I tried to push net profit to near 0 to avoid taxes, by increasing marketing spend, buying stuff, etc. I only recently realized that this was hurting the business in the long-term.
Highly recommend reading "Simple Numbers, Straight Talk, Big Profits". Absolute eye-opener for me.
Here's a good summary of the most important points in the book: “The Four Keys” from Greg Crabtree’s “Simple Numbers, Straight Talk, Big Profits!”
Regarding salary, I try to set it to a tax-optimized amount. For my business entity, I pay around 33% corporate taxes on net profits. So I set my salary to an amount where the sliding scale of personal income tax amounts to around 33%, which comes out to around max. 120k Euro / year pre-tax after including add-backs for health insurance etc. Personal income tax in my country actually goes up to 42% (45% for really high income), so everything on top I keep in the business to reinvest or use it as equity reserve, because its taxed at a lower rate.
I balance this with the goal of 10% net profit. So if a 120k/y salary would mean not getting 10% net profit, I lower it until the business becomes bigger / more profitable.
The big payday will come with a sale of the business. With the right tax-optimized holding structure the sale will only be taxed at 1,5% (no typo), as long as the proceeds stay in / are reinvested from the holding company.
Dislike ads? Remove them and support the forum:
Subscribe to Fastlane Insiders.
Last edited: