Start-Up issues faced by all new businesses are common. Many of these start-up issues are easily resolved by utilizing historical solutions that work. This section of the website addresses and assists all start-ups with guidance and knowledge related to typical problems during the early phases of business.

## How Much is a Fair Profit? – Part IV of V Return on Capital

For all investors in business, capital is the fronted equity an investor risks in exchange for a return. This return can range from zero to infinity depending on the success of the business. A fair profit is really a function of four different factors.

There are a multitude of principles used in business, some are industry specific, others are functions of business. But there is one that is a general principle that is used across the board in all areas of business. It is called the ‘Substitution Principle’. It works just like the substitution principle in math that we all learned about in algebra.

## People, Process & Product – The Profit

Marcus Lemonis is the star of a TV series show called ‘The Profit’. He helps failing business turn around and become successful operations by fixing the three core elements of every business. He refers to these elements as the 3 P’s: People, Process and Product. It is an interesting show as it falls into the same arena as this website.

## Three Primary Characteristics of Successful Businesses

Over the last 27 years of working in the world of accounting, I have become convinced that to be successful in business, you must have three primary characteristics. It is the common thread that binds all successful operations in every industry I have witnessed.

## Tax Basis of Accounting – Accrual or Cash

This is the most often asked question by all new businesses. Should I be on the cash or accrual basis of accounting for tax purposes? The common layman would always answer ‘CASH BASIS’ for tax purposes. They say this because they understand that you only pay the tax on the cash that you keep. But for us tax preparers and authorities on this subject, the answer is ‘IT DEPENDS’.

## How Much is a Fair Profit? Part III of V – Risk

A third factor in determining a fair profit percentage is risk. Risk is divided into two types. The first is insurable and the second is uninsurable risks. Insurable risks are mitigated and have very little to no effect on the profit formula due to transferring the risk to a third party known as the insurance underwriter. Uninsurable risks are non-transferable and therefore the profit must be adjusted to compensate for this type of risk.

## How Much is a Fair Profit? Part II of V – The Economic Cycle

One of the primary purposes of a profit is to provide funds during downturns in the business cycle. Often referred to as the economic cycle, there are two types of cycles. The first is industry related. The second is broader in scope and is economy wide.

## How Much is a Fair Profit? Part I of V – Owner Compensation

A fair profit for a small business is between 9% and 37%.