Pre-Tax Profit Simple Numbers

Pre-tax profit is net income before federal and state income taxes are applied. Greg Crabtree uses pre-tax profit rather than after-tax net income as the primary profitability benchmark because tax rates vary too much across business structures and states to make after-tax comparisons meaningful.

The 10% target

Simple Numbers sets 10% pre-tax profit margin as the floor for a financially healthy small business. Below 10%, the business typically cannot fund taxes, eliminate debt, build core capital reserves, and pay the owner fairly — all at the same time. At 15%+, you have genuine flexibility. Below 5%, there's a structural problem that more revenue alone won't fix.

Pre-tax profit requires honest owner's pay

Pre-tax profit is only meaningful if owner's pay is recorded at market rate. An owner paying themselves $30,000 less than market rate shows $30,000 more pre-tax profit than the business actually generates. Crabtree's framework treats this as a fundamental distortion.

What to do with pre-tax profit

The Four Forces of Cash Flow framework answers this: set aside for taxes first, apply excess to debt elimination, fund core capital to the two-month target, then consider distributions.