roaming-panda-llc/cap-to-tap-planner

CAP to TAP Planner

Plan the gradual transition from your Current Allocation Percentages (CAPs) to your Target Allocation Percentages (TAPs) using the Profit First 3% rule.

The 3% Rule

Never adjust allocations by more than 3 percentage points per quarter.

Jumping straight to TAPs will starve your business of operating cash. Gradual change prevents crisis.

Input Required

1. Current Allocation Percentages (CAPs) - What you're actually doing today:

   • Profit: ___%
   • Owner's Pay: ___%
   • Tax: ___%
   • OpEx: ___%

2. Target Allocation Percentages (TAPs) - Where you want to be:

   • Profit: ___%
   • Owner's Pay: ___%
   • Tax: ___%
   • OpEx: ___%

Planning Process

1. Calculate gaps for each account (TAP - CAP)
2. Identify largest gaps - prioritize accounts furthest from target
3. Plan quarterly adjustments - max 3% total movement per quarter
4. Balance changes - increases must be offset by decreases (total always 100%)

Response Format

## CAP to TAP Transition Plan

### Current State

| Account | CAP (Current) | TAP (Target) | Gap |
|---------|---------------|--------------|-----|
| Profit | X% | X% | +/-X% |
| Owner's Pay | X% | X% | +/-X% |
| Tax | X% | X% | +/-X% |
| OpEx | X% | X% | +/-X% |

### Quarterly Adjustment Plan

#### Quarter 1 (Current → Q1)
| Account | Before | Change | After |
|---------|--------|--------|-------|
| Profit | X% | +X% | X% |
| Owner's Pay | X% | +X% | X% |
| Tax | X% | — | X% |
| OpEx | X% | -X% | X% |

**Rationale**: [Why these changes first]

#### Quarter 2 (Q1 → Q2)
[Same format]

#### Quarter 3 (Q2 → Q3)
[Same format]

[Continue until TAPs reached]

### Timeline Summary
- **Start**: [Current CAPs]
- **Quarters to reach TAPs**: X
- **Target completion**: [Date/Quarter]

### Priority Order
1. [First priority and why]
2. [Second priority and why]
3. [Third priority and why]

Prioritization Guidelines

Typical Priority Order:

1. Profit (if at 0%) - Establishing ANY profit allocation is priority #1
2. Tax (if under-allocated) - Avoid tax-time surprises
3. Owner's Pay (if under-allocated) - You need to pay yourself
4. OpEx reduction - The constraint that makes everything else work

Special Cases:

• If Tax is way under: Prioritize to avoid IRS problems
• If Profit is at 0%: Even 1% is a win - start there
• If OpEx is already tight: Slower transition, smaller adjustments

Example Plan

Starting CAPs:

• Profit: 0%
• Owner's Pay: 35%
• Tax: 10%
• OpEx: 55%

Target TAPs ($200K business):

• Profit: 5%
• Owner's Pay: 50%
• Tax: 15%
• OpEx: 30%

Quarter 1:

• Profit: 0% → 2% (+2%)
• OpEx: 55% → 53% (-2%)
• Focus: Establish profit habit

Quarter 2:

• Owner's Pay: 35% → 38% (+3%)
• OpEx: 53% → 50% (-3%)
• Focus: Increase owner compensation

Quarter 3:

• Profit: 2% → 4% (+2%)
• Tax: 10% → 11% (+1%)
• OpEx: 50% → 47% (-3%)
• Focus: Continue profit growth, start tax catch-up

Quarter 4:

• Profit: 4% → 5% (+1%)
• Tax: 11% → 13% (+2%)
• OpEx: 47% → 44% (-3%)
• Focus: Reach profit target, continue tax

Quarters 5-8: Continue until all accounts reach TAPs

Timeline: 8 quarters (2 years) to full TAPs

Validation Rules

1. Total must always equal 100% - Every increase needs an equal decrease
2. Max 3% total change per quarter - Sum of all changes ≤ 3%
3. No negative percentages - Can't go below 0% on any account
4. Realistic OpEx floor - Don't cut OpEx below what's needed to operate

Warning Signs

Alert the user if:

• OpEx would drop below 20% (may be unsustainable)
• Changes exceed 3% per quarter
• Plan would take more than 3 years (may need revenue growth first)
• Starting CAPs don't sum to 100% (data error)

Important Notes

1. This is a plan, not a commitment - Adjust as circumstances change
2. Review quarterly - Business changes, plans should too
3. Celebrate progress - Each quarter closer to TAPs is a win
4. Expense cuts required - Moving to TAPs means reducing OpEx spending

Attribution

The 3% rule and CAP-to-TAP methodology is from Profit First by Mike Michalowicz. For the complete methodology, see "Profit First" at profitfirstbook.com.