What Business Owners Want More Than Anything
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Yep, it’s just money. What business owners want more than anything is more money.
You might say it’s to build a great brand name, to fulfil their creative needs, to allow them to be more independent, to control their own destiny, to spend more time with their family, but…
Money Means Profit
The fact is it all revolves around money. You need money to fulfil your creative needs, to be more independent, to control your own destiny, and any of the other things that made you start your own business. And in business this money is translated into the word profit. Profit means more money, and in this world of affluence, some people still stay profit is a dirty word. Even non-profit, or not for profit organizations ask for contributions or government assistance in the way of money. They need to make a profit in order to reinvest back into their organizations – to make them grow, so they can help more people.
Money Is The Result
But here’s the kicker: If you focus your business on making more money, or profit, it’s going to be an uphill climb. Once you realize that profit is the RESULT of the activities you perform, you are likely to get a better result. Focus on your customer, on servicing their wants, and you will get more customers. And more customers means more money, right? Not necessarily. You see it’s not the money you make, that is the money you receive from your customers, that makes you rich. It’s the money you get to keep after you’ve paid your employees, phone bills, electricity, the tax man etc. etc. The money that you get to keep to spend or invest on yourself, is called profit. Net Profit after tax for those who like accounting terms.
Profit, or Loss?
So why does having more customers, spending more money with you not always translate into more profit. Because it also costs money to operate a business. And, (yeah I know, this is really simple stuff) if you have more money going out than coming in, you’re not making a profit. So why do so many businesses go broke even though they are making heaps of sales? Because they are not looking at the back end of their business, their Key Performance Indicators , their dashboard where all the indicators are. Many of these indicators are found in the financial statements of the business. Yeah that’s right, all the stuff you have an accountant to worry about.
Let’s face facts though, it’s unlikely your accountant is going to be worrying too much, even a highly sensitive and caring accountant. The other thing is, an accountant is like a score keeper. They tell you the results after the game is over. Don’t get me wrong, a good accountant is absolutely essential for your business. They take care of the compliance issues, making sure you are paying the right amount of tax, ensuring the correct authority rules are being followed.
Okay, so let’s make this easy. There are two types of profit (in accounting terms): Gross Profit and Net Profit.
Gross Profit is what you get after you buy something to resell. For example, you buy a pair of shoes from a wholesaler or manufacturer for $100. You then sell those shoes for $150, you’ve made a gross profit of $50. BUT, if you had to pay a sales assistant $20 to sell those shoes, plus advertising of $20 to your local paper (or online sales channel), your costs of selling those shoes are $40. That leaves you $10 Net Profit BEFORE you have to pay tax. Okay, so multiply these figures by say 1000, take into account costs of renting a shop, paying electricity, phone bills and so on, and you will start to see the impact of what I’m saying.
So now you have just learned a little about reading a Profit and Loss Statement, or Income Statement or whatever statement they call it in your neck of the woods, it still means the same thing. I will go in to more detail on understanding financial statements, and how to make more money in upcoming posts.
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