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Most owners pay everyone else first and keep whatever survives. Usually nothing survives. This splits your month into four buckets before you spend any of it, using the target percentages for a business your size.
Subtracting materials and subcontractors gives your real revenue: the money the business actually gets to work with. A builder turning over $40,000 a month with $22,000 going straight to materials is running an $18,000 business, and should budget like one.
These come from Mike Michalowicz's Profit First method. The percentages are applied to real revenue, which is total revenue minus materials and subcontractors. Smaller businesses take a much bigger share as owner's pay because the owner is doing most of the work; as a business grows, that shifts into payroll and the profit share rises.
| Real revenue a year | Profit | Owner's pay | Tax | Running costs |
|---|---|---|---|---|
| Under $250K | 5% | 50% | 15% | 30% |
| $250K to $500K | 10% | 35% | 15% | 40% |
| $500K to $1M | 15% | 20% | 15% | 50% |
| $1M to $5M | 20% | 10% | 15% | 55% |
| $5M and above | 25% | 5% | 15% | 55% |
Source: Profit First target allocation percentages, Mike Michalowicz. Two things to hold loosely. The 15% tax line is a rough US starting figure, and what you actually owe depends on your entity type, your state and your income, so ask your accountant for your number rather than trusting a table. And if the full profit percentage feels impossible this month, Michalowicz's own advice is to start at 1% and raise it a quarter at a time. One percent you actually keep beats fifteen percent you abandon in March.
Marcus brings in $18,000 in a good month. $3,000 of that goes on plants, stone and a subcontracted digger, so his real revenue is $15,000 a month, or $180,000 a year. That puts him in the under-$250K band.
| Bucket | Share | This month |
|---|---|---|
| Profit | 5% | $750 |
| His pay | 50% | $7,500 |
| Tax set aside | 15% | $2,250 |
| Running the business | 30% | $4,500 |
If his real running costs are $6,000 a month, the split has just told him something useful: he is $1,500 a month over, and no amount of discipline elsewhere fixes it. Either the prices go up, the costs come down, or the pay comes down. The split does not solve the problem, it just refuses to let him keep not seeing it.
Why take profit first instead of last? Because whatever is left at the end is always nothing. Expenses expand to fill whatever money is available. Taking the cut first forces the rest of the business to operate on what remains, the same way a payroll deduction into a pension works better than a promise to save.
Do I need separate bank accounts? It is the part that makes it work. Four buckets in one account is four numbers on a spreadsheet you will ignore by week two. Four actual accounts means the money is physically not there to spend. Most business banks let you open several checking accounts at no cost.
What is real revenue and why not use total revenue? Real revenue is what the business keeps before any other costs: total revenue minus materials and subcontractors. If you resell a $10,000 piece of equipment at a $900 margin, budgeting as if you earned $10,000 will bankrupt you. The percentages only make sense against the money you actually control.
What if my running costs are more than the target? Then you have found your problem, which is the entire point. It means prices are too low, costs are too high, or you are carrying overhead the current volume cannot support. Check your prices first, because it is usually that.
How often should I split it? Twice a month is the usual rhythm, on the 10th and the 25th. Often enough that balances never get big enough to feel spendable, rare enough that it is not a daily chore.
When all your money sits in one account, it feels spendable. Splitting it as it arrives turns profit and tax from leftovers into decisions.
The method behind this tool, popularized by Mike Michalowicz in the book Profit First, flips the usual formula. Instead of revenue minus expenses equals profit, you take profit and tax out first and run the business on what remains.
The point is not the exact percentages. It is that profit, pay and tax become fixed commitments, so a slow month shows up as a signal to adjust costs or prices instead of a surprise.
Start with real revenue: total revenue minus materials and subcontractors. The percentages apply to that number, because it is the money the business actually controls.
If the Running the business bucket is too small for your real costs, that is the finding. It means prices are too low, costs are too high or overhead is heavier than your volume can carry.
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