“Had a great month, brought in a lot of money!” Was that income or profit? That was my questions. Income we can define as money that came into your business, Profit we can define as the money left over after all expenses.
It’s important that you not only know the difference but also know when money that comes into your firm is actually profit.
I am a great believer in visual presentations; if your budget is accurate you should know what your expenses are for each month. That should include not only business expenses, but should also include your personal salary. Follow one of these two suggestions:
- As an example, if your expenses for the month total $10,000, on the left side of the page draw a vertical line and divide it in 1,000 increments up to $20,000 and at the $10,000 mark draw a line across the page. Draw a line at the bottom of the page and divide it by the number of days in the month. Every day mark your income and add it to the previous days income. When you cross the $10,000 mark you are in the profit cycle. ( This can easily be set up on your computer)
- Use the same system to chart your annual progress.
This simple system serves as a reminder of where you are, and where you need to go, to become profitable for the month and the year.
The purpose of a business is to generate a profit. The old saying, out of site out of mind applies to many small business owners who seldom know where they are financially. I designed this system as a time saver for the busy small business owner that claims that they don’t have time to keep an up to date income and profit statement.
The system is easy to implement and it will serve as a constant reminder of what your business has to accomplish in order to not only survive but to grow.
The way to get started is to quit talking and begin doing.
Certified Financial Planner
Business Coach and Mentor