It’s a hook to talk about money on X, or Reddit, or LinkedIn, or wherever you get your impostor syndrome.

When money is mentioned, it’s normally referring to revenue.

It’s the largest (good) number a business has, and it paints a picture of the size of your agency, so it’s of some use.

But it gets mistaken for an indicator of performance, especially in a smaller agency.

To indicate performance you need to look at profit. Which can also be misleading because founders forget one important cost.

Themselves.

This article is about:

  • budgeting your own salary to get a real view of your profit,
  • how that helps you assess your agency’s performance,
  • the transformation that can follow when you start seeing yourself as both employee and director of your business.

The temptation to manipulate

One misleading way to calculate profit is to declare it before you take what you need out. Another is to take out a lot less than your market rate.

Why do we do it?

Solo operator agencies

An agency’s largest costs are their staff, which will be zero if you don’t have any. After that there will be a few small software costs and then there’s tax. If you aren’t incorporated, you may consider tax to be something you pay personally.

Beyond those, all the money you make is yours.

Bigger agencies

Even an established agency with staff will often under-budget for their founder’s salary. They treat the founder’s take-home as a convenient source of flexibility and move it up and down to stay profitable.

It’s being practical and not taking out more money than your business can handle.

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The issue with both of these is that the profit you then declare doesn’t tell the full story of how well the business is doing.

Pay yourself before you declare profit

Profit is an essential indicator of your business’s performance if you measure it in a standard way. Beyond just telling you that you are making money, it tells you if you are making enough money to invest in growth.

It also provides a warning when your business model is becoming less efficient.

It needs to be tracked over time and in a way that you can benchmark against.

This is why we have the term EBITDA, which you’ll have seen instead of just the term “profit”. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

These arebusiness wordsthat mean we aren’t considering some ways to make or lose money that aren’t relevant to your performance.

Take tax, for example. If we have two agencies that are exactly the same but one of them is in a territory with higher taxes, we wouldn’t say the one that pays less tax is performing better than the other.

Getting an accountant that can help you pay the right amount of tax is a good idea, but it’s not useful for judging whether your agency is well run, unless the point of your agency is to avoid tax.

If your government raises taxes, your agency isn’t suddenly worse.

This also applies to things like earning interest on the money in your bank account and any changes to what you are paid because of an exchange rate if you get paid in a different currency.

Looking at EBITDA gives you a clearer picture of your business’s operating performance and financial health. Not having your market rate salary as a cost muddies things.

A standard view

Create a budgeted amount that you pay yourself and have it as part of your costs before you declare profit.

Even if you end up actually withdrawing less, it’s good to know what your profit would have been. That way, you can tell the good months from the bad months.

If you are solo, then once you start making over this amount, you can start to budget for other things like investing in growth. Take a moment to celebrate first, though.

By doing this, you may suddenly not be making any profit.

That’s a good thing. You are now forced to find a way to increase your revenue or reduce costs and build a profitable business model.

Making money is your business’s number one problem. And when you get bigger, your problems get bigger. You are much better off doing this early.

You are not the business

As you grow, you start to stop thinking of yourself as the business.

While running my agency, someone pointed out to me that Dan is both a director of the business, who looks after the business, and an employee of the business, who needs to be looked after.

Even if you have personal branding, you should try and make this mindset shift.

Good decisions and growth come from here.

And you can still post your revenue on socials if that’s your thing.

I’m not judging.