Target Allocation Percentages

Target Allocation Percentages

In the book Profit First, Mike Michalowicz puts out a concept called “Target Allocation Percentages.”

The gist of his system is simple: you have an income account where you collect your cash, and then it’s allocated based on a real-revenue based scheme.  These go into separate accounts.  Seven of them.

He defines real revenue as revenue less contractor and per-job material expenses.

I’m starting a new business and I wanted to just put out what I mean to do.

Profit: 12%
Owners Compensation: 50%
Tax Allocation: 15%
Operating Expenses: 23%

I think that this is more or less realistic.

I’m on a path where I don’t mean to hire additional providers this year. I want to dial in a system with me as a solo entrepreneur. There are a lot of things here that I have to do to make this right.

Every business I’ve built had big goals but we plowed money back into the business. We have hit some big revenue numbers. But then the business consumed everything. So we had to scramble to keep up, and a general malaise got to us.

“Bank Account” financial planning sapped a ton of energy–  the same way that Launch Energy does.

I hired people needlessly. I spent on software. I went to fruitless and non-productive events. I did a lot of that stuff for a long time.  I had money in the bank, strong sales, and for a long time, that masked the problems. But we never got our structure right so we never got to where I needed to go.  What I had built as a business had become an inadvertent Ponzi scheme.  We needed new money to pay back the old stuff.

This time isn’t like that time. I’m putting my faith and trust in systems. 

Tomorrow is a big day for me. I’ve got some things built and completed. I’m going to really begin the work, as the plumbing part of the business is ready to be tested.

The fear and doubt are my constant companions.

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Christopher Johnson

Christopher Johnson is writing this blog. He's a startup veteran, having built a company called Simplifilm. This blog is about things that he's starting to - but may not actually - think yet. It publishes irregularly.
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