I'm having an argument with the boss...

Depends on many factors. But if you put capital assets into a business and at the end of a year you have assets worth 5% more, then you could have got at today's rates about 5%, less tax on interest (nett 4%), from Halifax, and might be up by a whole actual 1% depending on your measure of inflation. However, is the profit after owner has taken a salary from the business, and would he have been happy to have no work and take no salary, or happy to work for someone else and could get a comparable salary from such work ?

Toom

What about some compensation for the risk of losing the lot ?

Also when you say 5% profit - is that 5% of turnover or 5% of investment ?

One flaw in his argument I can see is that the 5% profit is, presumably, calculated after the boss has paid himself a salary and allowances out of the company. If the capital invested in the company were instead invested in the Halifax at 5% he would then have to draw on that 5% to provide himself money to live off.

Chris

"Chris Blunt" wrote

No he wouldn't - he'd be working elsewhere instead, and be receiving salary from that. Alternatively, if you really do want to compare the business against your "Halifax" scenario (ie with him not doing any work), then you need to imagine that he had got in a manager for the business instead of running it himself, whom he would have had to pay a salary...

Or do you really think that he should work for *nothing* ?!

It rather depends on the nature of the business and the amount they've spent on capital equipment or sunk costs. If we were talking about an old fashioned metal bashing business and filling a factory full of expensive kit for a mere 5% margin then clearly a return below the cost of capital is not worth making (assuming future projections are equally dim). However, if the business was running on what is a essentially a few grands worth of IT equipment (which is virtually worthless on the secondary market) and based on previous labour then the return isn't so bad if no new investment is needed in the future and the outlook is quite rosy.

It does makes you wonder where the remaining 95% disappears to, whom is he working for again? :)

In message , Dave F. writes

How can you say this..............

And then say this ..........

You havent given us anything like the right info.

The first obvious question is "5% of what?"

From a taxpayers point of view, by keeping the company going, even if it is only getting the 5% profit, it presumably is keeping someone in employment who is contributing National Insurance and tax rather than drawing benefits.

The main thing is that 5% profit is better than no profit at all.

chas

That depends on whose point of view you're looking at it from. From the point of view of an investor who has nothing to do with the business, it doesn't sound like a great investment (assuming you mean 5% of investment, rather than 5% of turnover). However, if it's a small business that the boss owns himself, and the profit comes after he's paid his own salary, then that's a completely different thing. If he's paying himself a generous salary, then really he doesn't need to make any profit at all.

FWIW, I own and run a small business, and pay myself a tiny salary, so I am entirely dependent on my profits if I want to pay the mortgage and eat. If your boss is an a similar position, then it might be that he has just taken a huge pay cut. It can easily happen in a small business. I had a bad year a few years ago, and although we still made a profit, it was a tiny one and I was by far the lowest paid employee that year.

Adam

Indeed.

A business owner can't pay himself a salary (unless the business is a limited company). He pays himself "drawings" which come out of profit and are therefore included in the 5%.

Consider taking yourself to an employment tribunal to sue yourself for paying yourself less than the National Minimum Wage. :-)

Great idea! Would my employer's liability insurance cover me if I win? Come to think of it, what if I stub my toe on a filing cabinet and sue myself for the injury?

No, only if you lose.

You should deny liability and blame the manufacturer.

Thank you all for replying.

Sorry for not being clearer. It's 5.5% of turnover.

The company setup it a bit different I think. not sure how common it is.

The company that the employees work for is a limited company. The directors (there's more than one boss) have there own partnership, I think. they own the building & rent it back to the ltd company. Not sure at what stage they take their wages but I'm pretty sure it's not from the profit.

Dave F.

In that case it's meaningless to compare it with "sticking it in the Halifax", because turnover isn't money you have, it's just money passing through your hands.