How to read this report: Each metric is graded against proven benchmarks from Greg Crabtree's Simple Numbers framework. Green means the business is hitting its target. Red means something needs attention. Notice how this company's gross margin is strong at 75% (green), but labor inefficiency is dragging pretax profit down to 4.8% (red). That gap is the story - and it's exactly what most business owners can't see without this report.
Scorecard
| Metric | Grade | Target | Actual | Note |
|---|
| Pre-tax profit margin |
Caution |
15%+ |
4.8% |
Well below floor. The business looks busy but is barely making money after all costs. |
| Labor efficiency (dLER) |
Caution |
2.5+ |
1.72 |
Every $1 of labor generates only $1.72 of gross profit. Below the 2.0 floor. |
| Salary cap at 10% |
Over Cap |
$142,800 max |
$198,000 |
$55,200 over cap. Paying more in total labor than the business can support at 10% profit. |
| Core capital target |
Underfunded |
$31,400 |
$18,200 |
Cash is $13,200 below the 2-month operating expense target. One bad month away from trouble. |
| A/R days outstanding |
Great |
≤ 30 days |
22 days |
Collecting fast. Customers pay on time. This is a real strength. |
| Debt repayment |
OK |
Declining |
$42,000 |
Vehicle and equipment loans. On track but consuming cash flow. |
| Quarterly tax set-aside |
Short |
$5,820/qtr |
$2,100 saved |
Behind on estimated payments. Risk of underpayment penalty at year end. |
Commentary
Four Forces of Cash Flow
1
Taxes
$5,820/qtr
Behind. Only $2,100 saved. Catch up immediately.
2
Debt repayment
$18,400/yr
$42,000 balance. Eliminate in 2-3 years.
3
Core capital
Short
$18,200 vs $31,400 target. $13,200 gap.
4
Distributions
Hold
Do not take distributions until core capital is funded and taxes are current.
Profit First Model
Total revenue$485,000
Profit target (10%)($48,500)
Owner comp($72,000)
Direct labor($126,000)
Contribution margin$238,500
COGS (materials)($121,250)
Operating expenses($188,720)
Pre-tax profit$23,280
The Wake-Up Call
The owner takes home $72,000/year. That sounds reasonable until you realize:
Market wage for this role: $85,000
Actual profit after real wage: $10,280
That's $856/month for owning and running a $485K business.
If the owner paid themselves market rate, pretax profit drops to 2.1%. The business is effectively subsidizing itself with below-market owner pay.
Key Metrics
dLER direct
1.72
Target: 2.5+
Salary cap (10%)
$142,800
Actual: $198,000
A/R DSO
22 days
Target: ≤30
Rev / employee
$121,250
4 FTE (incl. owner)
Gross margin
75.0%
Excellent. Materials well-managed.
COGS % of revenue
25.0%
Materials cost
OpEx % of revenue
38.9%
Primary improvement target
Rent % of revenue
4.9%
Well under 15% target
Break-even revenue
$420,293
Cleared by $64,707
Monthly break-even
$35,024
~$1,168/day target
Rev / working day
$1,942
250 working days
Core capital
-$13,200
Below target
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This company did $485,000 in revenue last year. That sounds like a healthy business. But after materials, subcontractors, three employees, the owner's draw, truck payments, insurance, and rent on the shop, pretax profit was $23,280 - just 4.8%. That is $1,940 per month in actual profit on a half-million-dollar operation.
The good news: gross margins are strong at 75% and customers are paying fast (22-day DSO). The product side of this business works. The problem is labor. At a dLER of 1.72, the team generates less than $2 of gross profit for every $1 spent on wages. Crabtree's target is 2.5. The salary cap analysis confirms it: total labor is $55,200 over what the business can afford and still hit 10% profit. The fix is either higher revenue per employee, fewer employees, or higher prices. The margins say the market will bear it.