LITTLE FALLS, NJ -- With tomorrow being the rescheduled Tax Day of 2020, we share this piece of business advice from Walter Pardo, CEO of WFP Tax Partners.

The GAAP formula, otherwise known as the Generally Accepted Accounting Principle, is used for determining a business’s profit. 

The formula is sales - expenses = profit. It’s simple, logical and clear. The formula, while logically accurate, does not account for human behavior. 

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In the GAAP formula, profit is a leftover, a final consideration, something that hopefully is a nice surprise at the end of the year. But the profit is rarely there. So, let’s flip the formula: sales - profit = expenses. 

Logically, the math is the same, but from the standpoint of the business owner’s behavior, it is radically different. So, take a predetermined percentage of profit from every sale first, and then only the remainder is available for expenses.

 

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