E-Myth Mastery by Michael E. Gerber

Author:Michael E. Gerber [Michael E. Gerber]
Language: eng
Format: epub, mobi, azw3
ISBN: 9780061741630
Publisher: HarperCollins
Published: 2007-04-28T16:00:00+00:00

“Money In” breaks down into the owner’s investment, operating revenues (normally the biggest, most important source of funds), money borrowed from banks and others, and value added from business systems. “Money Out” breaks down into payouts to the owner(s), operating expenses (normally the largest outlay of funds), debt service to repay loans, and outlays due to unforeseen “wild cards” that occasionally happen to a business.

OWNER’S INVESTMENT AND PAYOUTS TO THE OWNER

Owners benefit financially from their companies in two ways: from the long-term appreciation of company value, and from payouts in the form of salary, benefits, and dividends. There is an important trade-off to consider when owners think about their personal financial strategy, and whether to grow the company or use it to fund their current standard of living. The less money owners take out of their company, the better its prospects for growth, and the higher the price the owners ultimately will get when (and if) they decide to sell the company. The more money owners take out of their company, the lower the ultimate value of the company, and the lower the sales price when and if they sell.

The owner’s personal financial strategy can be an important determinant of the company’s financial performance. In general, whether on purpose or by default, owners follow one of three strategies:

Maximize current personal income from the company.

Maximize company value and minimize personal income from the company.

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