SELLING POST OFFICES

This guide is designed to help you understand one of the most important numbers you’ll see when buying a business: Adjusted Profit.

To make it simple: Adjusted Profit is the "Total Salary Pot."

It is the total amount of money the business produces in a year to pay the people who work there (including you) and to reward the owner for owning it.

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Why don't we just use the "Profit" shown on tax returns?

Every owner runs their business differently.

• One owner might work 60 hours a week and pay themselves nothing.

• Another owner might work 10 hours a week and pay a manager $80,000.

• Another might put their personal car or family phone bill through the business to save on tax.

If we just looked at the "Net Profit" on their tax return, the business with the expensive manager would look "worse" than the one where the owner works for free. But the businesses are actually identical!

Adjusted Profit removes these personal choices so you can see what the business actually earns, regardless of who is running it.

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A Real-Life Example: From "Tax Profit" to "Real Profit"

Let’s look at a typical Licensed Post Office (LPO) and see how we find the Adjusted Profit.

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The Basic Numbers:

• Income (Sales & Commissions): $400,000

• Cost of Goods (Stock): –$100,000

• Gross Profit: $300,000

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The Necessary Operating Expenses (These stay no matter who owns it):

• Rent: $50,000

• Electricity: $3,000

• Accounting: $2,500

• Insurance: $2,000

• General Expenses: $3,000

• Total Operating Costs: $60,500

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The "Owner Choice" Expenses (These change depending on the owner):

• Wages (Owner + Staff): $150,000

• Superannuation: $15,000

• Owner’s Mobile Phone: $1,500

• Owner’s Car Expenses: $3,000

• Total Owner Choices: $169,500

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The "Bottom Line" on a Tax Return:
If you subtract all the expenses above from the Gross Profit, the paper says the profit is only $70,000.

BUT - look closer. That $70,000 is what is left after paying $150,000 in wages and $4,500 in personal bills. To find the Adjusted Profit, we add those back in:

• Profit on Paper: $70,000

• Plus Wages/Super: $165,000

• Plus Private Phone/Car: $4,500

• ADJUSTED PROFIT (The Salary Pot): $239,500

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How to use this $239,500 figure for YOURSELF

Now that you know the "Total Salary Pot" is $239,500, you can decide how to split that pot based on your life.

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Scenario A: You and your partner work the business yourselves

If the two of you do all the work and hire no outside staff:

• Your Total Family Income: $239,500

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Scenario B: You want to work less and hire an employee

If you decide to hire a part-time staff member for $50,000 a year:

• $239,500 (Pot) minus 

  $50,000 (Staff) = $189,500 (Your Income)

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Scenario C: You have a bank loan

Remember, the business doesn't care how you pay for it. If you have a loan that costs you $20,000 a year in interest:

• $239,500 (Income from Scenario A) minus 

  $20,000 (Interest) = $219,500 (Your Take-Home)

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The Golden Rule

When you see Adjusted Profit, think: "This is the total amount of cash this business generates to pay the people who work in it and the person who owns it."

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It is the only fair way to compare different businesses. Once you know the size of the "Pot," you can decide how much of it you want to keep for yourself and how much you want to use to pay staff to work for you.