What are the numbers that matter in your business?
Let’s start with profit.
Did you know that there are a few different ways that business owners think about “profits”?
Here are 3 to get us started:
Gross profit = the amount remaining from sales after you deduct the total cost of production. It is always useful to express this as a percentage of revenue
Net Profit = Gross Profit less Overheads
Profit after Tax = Net Profit less Tax payable
Over the years I have met business owners who also think of the following as “profit” and while they are involved in calculating profit are not actually types of profit:
Revenue or Sales = all monies generated from selling what your business offers – goods and / or services
Break Even = is the exact point where Gross Profit covers all Cost of Sales + Cost of Goods Sold + all Overheads
Other key measures that are involved in calculating profit:
Cost of Goods Sold = the cost of all the materials used to create your offer – ingredients, materials
Cost of Sales = any cost incurred to create your product – materials, parts and wages
Overheads – sometimes called Fixed Costs = these are all the expenses that you incur that are not directly related to production. Usually these remain constant, or fluctuate independent of production; rent, marketing, professional service, insurances, wages of non-production people
Why is it important to know and understand what all of these different terms mean?
Tracking how your business is performing on a regular basis – daily, weekly, monthly is critical.
I used to work in a manufacturing company and we knew how much profit we were making every hour! in fact we tried to figure out how much money we were making every minute!!
Set up a dashboard, spreadsheet to track these numbers. Ask your accountant or bookkeeper to provide the numbers on a regular basis – and track them
What we measure improves.
Ultimately you want your profit in your business to increase
When you track the results regularly, you begin to see where are the opportunities for improving profit
If you need help to set up a Dashboard or want to check your numbers email me at firstname.lastname@example.org or click here and let me know what you need