There are two types of metrics: evaluative and predictive. In other words, metrics can either look back to quantify past performance OR they can look forward to help you make guesses about future results based on past activity.
When setting up a budget for the next year, it helps to look at actual numbers from the past. In this case, we’ll be using the percentages of Owner’s Draw against Income.
Here’s the math: divide the actual Draw into the actual Income for each of the past three years. This gives us a percentage of Draw to Income for each year. Then apply that percentage to the projected 2017 income of $625,000 to get the high and low ends of a range of possible Draw for this coming year.. The actuals are in green and the projections are in purple.
| projected 2017 income | $625,000 | |||
| <— | ——- | rear view | ———–> | <– windshield –> |
| Year | Income | Draw | % Draw to Income | range for 2017 draws |
| 2014 | $500,000 | $265,000 | 53% | $331,000 |
| 2015 | $390,000 | $137,000 | 35% | $220,000 |
| 2016 | $370,000 | $110,000 | 30% | $186,000 |
So what this is telling us is that the range for the Owner’s Draw is from $186k-$331k.
If you find these strategies helpful and want to know more, then hit me up in the comments below with your questions and I’ll be happy to answer them.
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