Connect with us

David Brown

This Exercise Will Tell You Exactly Which Day of The Year You’ll Start Taking Money Home

mm

Published

on

What’s your favorite day of the year? There are a lot of options to enjoy across the annual calendar, but one in particular often goes unheralded: Tax Freedom Day.

Each year, the Tax Foundation calculates how many days the average American has to work in order to cover their tax liability. This year, Tax Freedom Day occurred on April 19th. So from that point forward, every dollar, on average, you earn as profit is for yourself, not Uncle Sam.

Or is it? Tax is just one of the obligations a business has to meet. If you are going to work out when you’ve worked off your tax bill, why not some of your other costs?

The Tax Foundation has worked out the Tax Freedom Day based on an approximate average tax rate of 29 percent. That gets you to around the 107th day of the year, or early- to mid-April. As a business owner, we would want to look at our costs relative to income, not relative to profit — after all, some expenses may be greater than the amount the business owner takes home, so it’s not the best way to apportion your costs.

Let’s say your net profit is normally 10 percent of your total income. This would mean that tax would represent 2.9 percent of your total sales or income, rather than 29 percent of your profit. So your tax would be covered by income after 2.9 percent of the year, which means approximately 11 days of average annual income. 

If you achieve a 50 percent gross profit, then it will take you half a year to earn enough average annual income to cover the cost of the goods you sell. Depending on what percentage of your costs are attributable to different aspects of your business, you can work out how long you need to work to meet some of your other business obligations.

Advertisement

For example; if wages represent 16 percent of your total income, then you will need 58 days of average annual income (365 days x 16 percent) to meet your staffing costs. If rent is 10 percent, then you’d be looking at around 36 days to meet this obligation. Of course, this is an extremely simplistic guideline, but it’s an interesting scenario to see who gets your money each day!

Of course at 10 percent profitability, and assuming an average income that is consistent each day, you would have to work until around Nov. 24. You can do the real exercise yourself and determine just when your profitability arrives. Given the proportion of income that skews toward December, it’s more likely that your Profit Freedom Day will be sometime after the middle of December.

So focus on cutting your costs and raising your margin — the sooner you can start keeping that income for yourself, the better it will be! 

David Brown is the president of Edge Retail Academy, a leading jewelry business consulting and data aggregation firm that provides expert business improvement plans to help with all facets of your business, including improved financials, healthier inventory, sales growth, increased staff performance, recruiting and retirement/succession planning, all custom-tailored to your store’s needs. They offer Edge Pulse to better understand critical sales and inventory data, to improve business profitability, benchmark your store against 1,200-plus other Edge Users, and ensure you stay on top of market trends with their $3 billion-plus of industry sales data. Contact (877) 569.8657, ext. 001, Inquiries@EdgeRetailAcademy.com or EdgeRetailAcademy.com.

Advertisement

SPONSORED VIDEO

Time for More “Me Time”? Time to Call Wilkerson

Rick White, owner of White’s & Co. Jewelry in Rogers, Ark., knew it was time to retire. Since the age of 18, jewelry had been his life. Now it was time to get that “me time” every retailer dreams about. So, he chose Wilkerson to manage his going-out-of-business sale. White says he’d done plenty of sales on his own, but this was different. “Wilkerson has been a very, very good experience. I’ve had the best salespeople in the history of jewelry,” he says. “I recommend Wilkerson because they are really the icon of the jewelry business and going-out-of-business sales. They’ve been doing it for decades. I just think they’re the best.”

Promoted Headlines

Advertisement

Advertisement

Advertisement

Subscribe


BULLETINS

INSTORE helps you become a better jeweler
with the biggest daily news headlines and useful tips.
(Mailed 5x per week.)

Facebook

Latest Comments

Most Popular