The short answer. Minimum Mandatory Profit is the dollar amount your business must clear next month to fund the five obligations that keep it running: Debt Service, Working Capital, Retirement Funding, Owner's Compensation, and Exit Strategy. It is not a goal. It is a floor. And it is almost never on your P&L.
The Five Sub-Layers
MMP has five components. Every one of them is real. Every one of them must be sized in dollars, not percentages of revenue.
Debt Service. Principal payments on truck loans, equipment loans, credit lines, SBA loans, and leases. Interest expense appears on the P&L. Principal payments do not. Add roughly $1.30 in required pre-tax profit for every $1.00 of principal because taxes have to be paid on that profit before the principal payment comes out.
Working Capital. The cash the business needs to fund the space between committing money to a job and collecting money from the customer. Growth eats working capital. If working capital is underfunded, growth becomes a slow-motion cash crisis.
Retirement Funding. The dollars going into the owner's retirement plan every month. If this is not being funded, the owner is quietly borrowing from their future selves to run the business. That borrowing has to be repaid, usually at sale, and it usually cannot be.
Owner's Compensation. The market rate for someone doing the owner's job at this business's scale. Undermarking owner comp overstates EBITDA. Every year of undermarking is a year the business is sized against the wrong required profit floor.
Exit Strategy. The dollars per year required to make the business sellable in the year the owner plans to exit. Includes cleanup of financials, key-person risk reduction, and any transferable-asset investment.
Why MMP Is Not On Your P&L
The P&L was built for the tax code, not for the owner. It reports revenue minus expenses to arrive at net income, which is what the government will tax. It does not report what has to be paid before the profit is real.
Principal payments flow through the balance sheet. Working capital consumption shows up as a change in current assets. Retirement contributions the owner has not made are invisible. Owner compensation paid below market rate is a hidden subsidy that boosts reported profit. Exit strategy funding does not exist as a line item anywhere in standard accounting.
This is why accounting acts like a coroner. It reports what happened. It cannot tell you what has to happen next month.
How To Calculate Your MMP
Start with monthly numbers. Not annual.
Debt Service: Total monthly principal payments across every loan, lease, and credit line. Multiply by 1.30 to gross up for taxes.
Working Capital: Average monthly cash consumed by growth in receivables, inventory, and prepaid expenses. If working capital days are growing, this number is positive. If they are stable, this number can be zero.
Retirement Funding: Monthly contribution required to hit the owner's retirement number by the target retirement age.
Owner's Compensation: Market rate less current draw, if the owner is undermarked. Zero if paid at or above market.
Exit Strategy: Monthly investment required to make the business sellable at the target valuation by the target exit year.
Sum the five. That is your MMP. If your P&L is not showing this number as clearable net income after all real cash uses, you are running against the wrong floor.
Frequently Asked Questions
Is MMP the same as net income?
No. Net income is what the P&L reports after tax expenses but before principal payments, working capital consumption, retirement funding, and market-rate owner compensation adjustments. MMP is the pre-tax profit required to fund all of those. In most businesses, MMP is significantly higher than reported net income.
How often should I recalculate MMP?
At minimum quarterly. Better: monthly. MMP changes with every rate move, every debt added or paid off, every material change in working capital days, and every restatement of owner comp. A stale MMP is worse than no MMP because it produces false confidence.
What if my business cannot clear MMP?
Then you have a business-model problem, not a cash problem. The pricing model was not designed to fund the current MMP. Options in order of preference: reprice the recurring work, cut the lowest-margin recurring work, restructure the debt to lower the debt service sub-layer, or reset owner expectations on the other sub-layers. Do not paper over the gap with more debt.
Does MMP replace my P&L?
No. The P&L is still required for taxes, banking, and compliance. MMP sits alongside it as the diagnostic floor. Run both. Use the P&L to know what happened. Use MMP to know what has to happen next.