This week we interviewed Mario Cimmino, CEO of LinkBound located in Boston, MA. Mario has owned and operated online businesses since he was 17 years old. Mario stated that if he could share one thing with young entrepreneurs it would be “three bucket mastery”. He claims he did not create the strategy himself and is not aware of the original creator but thinks it is extremely important for every startup entrepreneur to know.
“Three Bucket Money Mastery” is what he calls it. A financial strategy or equation that allows you to figure out the estimated amount your business would need to earn in order to pay yourself.
The biggest mistake Mario claims that he sees is underestimating the amount of money required in order to pay your self as a business owner. Lets use an example below.
Let’s say that Dave is a new entrepreneur and his goal is to quit his day job. He needs $5,200 a month in order to quit his job. Dave creates a new product and prices it at $20. Dave thinks he only needs to sell 260 items in a month… This is where things go wrong.
Dave forgot about taxes! Depending on the state he is in 40% of the money he makes is going right to the IRS. You may think this is common sense duh! Of course you have to pay taxes… You would be surprised how many people forget this in their finance goals.
The next mistake is not accounting for business scale. To make more money in business you need to sell more product.. Scale. Most entrepreneurs don’t account for the amount of money that needs to be placed back into the business for advertising, human resources etc. A good percentage for this is 40%.
This leaves us with only 20% left after $5200 worth of profit. Which means that in the end you would only be paying yourself $1040 and you have to pay personal taxes on that income.
So in reality if Dave wanted to make a personal income of $5200 he would need around $45,000 in business profit. Totally different number.
Now this isn’t always the case. Some businesses like online businesses don’t require much money to be put back into the business or have much overhead. The purpose of this 40/40/20 rule or “three bucket rule” is to prepare the entrepreneur for financial management of his business.
If you would like to learn more about Mario Cimmino please visit his blog or social media accounts. Mario works with online businesses and local partnerships while taking equity.
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