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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Construction Owner's Salary, Construction Business Profit

by Michael Stone

After reading our last newsletter, one of our readers wrote in and asked if my recommendation of 8% profit and 8% owner's salary was a coincidence.

Yes and No. I do like to keep things simple, but those figures aren't set in stone (excuse the pun).

A consistent 8% profit will all but eliminate the financial problems of a construction related company. 10%, which is even better, will give you some hope of a retirement fund. 15%, which some of our coaching clients achieve, is retirement even sooner.

Having said that, 8% owner's salary is not part of that profit. Owner's salary is an overhead expense. It is not, nor should it be considered profit. This is a check I tell contractors to use on their CPA. If s/he doesn't explain the difference between the two, make sure you understand that difference and treat them accordingly, then find a new CPA.

Owner's salary also is better at 10%. Your salary must be dictated by the volume of profitable business that your company does. If you can make more than 8%, great, take it. If you can't take 8%, and still have 8% profit left, then it is a warning sign to you that something isn't working right. Don't ignore that warning.

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