Take Cash Out without Cashing Out

From time to time you may want to take money out of your business. You may not want to reinvest in growth or you may need some money for personal bills. For instance, let’s say you and a friend start a T-shirt company and, according to your Grunt Fund, you both have 50% of the pie (which is rare, but this is just an example). You have a good month. You have $5,000 in profit in the company’s bank account. You may need some cash to pay rent. There are two options. The first is to simply pay yourself but not your partner. In this case the cash would be treated like current compensation (wages) and you would have to deduct the cash amount from your GHRR and recalculate the pie. Only the pie you already had would be effected, not future pie which you would continue to earn at the original rate. This is fair because pie is given in exchange for the risk that you might never get paid. If you get paid, no pie is in order. After the transaction you would have less pie than your partner who did not take any pay.

However, there is a fair way to get paid without giving up any pie. You simply pay everyone in proportion to how much pie they have at the time of the payment. In the above case, if you needed $1,000 cash you could simply withdraw $2,000 from the company coffers and split the money according to your pie (50/50). Clearly, this consumes more cash and you may not want to do it. You will have to decide how much you need the cash and how much delicious pie you are willing to forgo.

If cash payments are made to Grunts, the Grunts who don’t need the cash can’t simply reinvest at the 4x rate. That would be gaming the system and it’s not fair. Gaming the system is not in the spirit of the Grunt Fund.

You may remember from Slicing Pie that cashing out is a way to buy back pie from an absentee owner. The amount of cash depends on the circumstances under which the person left the company. See the chapter on subtracting a Grunt for a full explanation.  A cash-out event like this is usually reserved for people who are not expected to stay with the company.

  • PeeDeeRiverPatriot

    in two places you need to replace the word “cash” with “case.” By the way, really appreciate your book!