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How to withdraw money from your business without putting it at risk?

The problem then is not that there is no money to give to the owners, the problem is that giving money to the owners becomes our last priority.

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This article was translated from our Spanish edition. Opinions expressed by Entrepreneur contributors are their own.

In 2015 I started working with a couple of entrepreneur brothers who have an industrial equipment rental business. At that time, they earned just under 20 thousand pesos each.

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The business was very successful, growing at interesting rates year after year and with an occupancy rate of more than 80%. All the profit that came in was reinvested to buy machinery and make it grow more. So far everything sounds good. However, in that equation, the brothers forgot to set aside some of those earnings for themselves.

What happened? That even their own families resented the situation.

Today they earn 250,000 pesos each and their business continues to grow; the last year by 30%, and of course their families are the happiest.

What was the catch? Between growing their business or making money, 90% of entrepreneurs will choose to grow the business.

It is common to hear some entrepreneurs say that you should not take a fifth of the business and that everything must be reinvested and reinvested. Almost as if it were a binary decision: you grow or you make money.

But what if both could be achieved?

This was exactly what the brothers and I worked on, and it was nothing more than following a series of simple rules.

The first was to put the entire administrative and accounting system in order to understand how much money the company was really generating. Having the correct financial information to the penny was a requirement to be able to balance growth (the purchase of more equipment) with the “distribution of dividends”.

Once we did that, we used Mike Michalowicz's book Profit First by Mike Michalowicz as a strategy.

How do we make a profit in our businesses?

Let's take an average month. We have some collection during those 30 days, but from there we make payments (suppliers, fixed, etc.) and if in the end there is money left over, then we could decide to give something to the shareholders, and if there is no excess, then we pay nothing.

This way of running the business, which is also the most common worldwide, has one major drawback: we will always find what toil away money.

Think about it: when your business has a very good quarter, a year, or several years, you change the trucks, take the vehicles to repair at the agency, improve the computers, hire extra people and fire personnel without much problem. But when the business has bad months or years, then we do not change the truck, we do the services in a workshop, we do not touch the computers, we do not hire so easily and you do not give yourself permission to fire so quickly.

The example in the book is ideal:

When at home your toothpaste is almost gone, you remember that you have to go shopping, but the next day you forget it and therefore now you have an almost empty toothpaste tube. Somehow you manage to get enough money out of him to "survive" that day, and you make a mental note that now you DO HAVE to go for pasta.

The next day, history repeats itself: you forgot to buy pasta and now you have less. Yesterday you thought there was no way you could get more paste out of the damn tube, but since you have no other option, you get a little more out of it and brush your teeth once more.

What do you think happens the next day?

Again the same, you could not go buy more pasta and when you get to the bathroom you only have to hit the sink angrily because you forgot again, but since you have to brush your teeth, again you do your best to get more toothpaste from the miraculous tube.

And so a few more days could pass, in the last attempt you would take a knife, and you would open the paste and as a cardiologist surgeon you would remove the filling at any cost.

Now, what would have happened if you had three new tubes of pasta in your bathroom drawer? You would have thrown away your nearly empty pasta from day one; a paste that still gave you several more days would have ended up at the bottom of the trash can in your bathroom.

What am I going with this?

When we have good times, we find ways to spend our money in a looser way than when we have bad times; We do it with toothpaste, we do it with gas from the car (you drive faster with a full tank than with a half empty tank) and of course, we do it with the business.

The problem then is not that there is no money to give to the owners, the problem is that giving money to the owners becomes our last priority.

What the author proposes (and what we did with the brothers) is:

Every month we will take 2% of EVERYTHING collected, and we will give it to the owners. Let's say we formalize a "2% commission" for the owner.

Apart from their salary, the brothers then earned 1% of everything collected each month.

As the months and years passed, we increased this percentage and today we are taking out 14% of the collection month by month and the business continues to grow.

The recipe looks simple, but it is not easy. Some points to consider to make it really work:

1. Accounting and financial statements have to be 100%. In this case it took us at least a year to achieve it because they did not have an administrative system that would give us what we wanted, so we had to implement one (and that takes a long time).

  • My recommendation is that you look for an ERP.

2. The withdrawal of resources must be given in periods not exceeding 30 days , at least once a month the money must be withdrawn, otherwise the habit is lost.

  • My recommendation is that it be done weekly.

3. Start with a small percentage (the intention again is to form a habit), and once you start it is advisable not to stop. You will have months or weeks where you feel that you should not take anything out, but that is the intention, that you force yourself not to have that money for the business and that forces you to improve control of your expenses.

  • My recommendation is that if you start with a small percentage you will not have so much problem, if you start with a high percentage you could have a real crisis, and you will have no choice but to stop your commissions and once they stop for the first time they will not be returned to restart.

This is one of the best books that as a business coach I can recommend you, here is a link for you to buy it on Amazon.