Business Advice

Business Profits - How to Make More Money

How to see if you are really making any money

(This is an excerpt from my 5 Laws of Marketing book. It is such an important part of running a profitable business that I wanted to share it here.)

I really didn’t know the best place to put this in the book, but it is so important that I knew it had to be included. It really isn’t a marketing thing, but it covers one of the biggest problems I see in businesses I deal with. I ask them if they are making any money and if they can actually give me an answer I ask them how they know. While I don’t have anything against accountants, the accounting profession has brought on part of this. When I ask the above questions, I am not asking about the profit statement or balance sheet. What I am asking is more about the health of the business.

Here is a simple way to see if your business is making any money. And this is something that you need to know by the day; week, month and year for as far back as you can track it. If you don’t know or aren’t tracking it now, you need to start right now. Not tomorrow or next week, but right now.

No matter what type of business you are in, you are selling something. It doesn’t matter if it is goods or services. Everything you sell has a cost involved. This is usually called the cost of goods sold, or COGS. For example, if you sell staplers for $10 and you pay $4 for them, your cost of goods sold is $4 per stapler. This leaves a gross profit of $6.

What you need to track is how much gross profit you are generating and compare this number to every dollar that is going out other than COGS. What is left over is your profit before taxes. Now is when you get the accountants involved in order to pay as few taxes as possible on this money.

Some of you may be saying that this is a lot like a cash flow statement. Well, it is much like a cash flow statement, but it also tells me exactly what kind of shape a business is in.

Once you start tracking all of this information, you will realize exactly what can be done to make more money. You either have to increase the money coming in, decrease the money going out or both. The way to increase the money coming in is sell more at the same gross profit percentage, increase the gross profit percentage on the same sales, or increase sales and gross profit percentage at the same time.

Notice that decreasing the money going out does the same thing to the bottom line as increasing the money coming in. Also notice that sales numbers by themselves mean very little. If you are losing a dollar on everything you sell, more sales just means that you are going broke faster.

If you don’t take a single thing other than this out of this book, you will be a better business person because of it and you will instantly move to the top few percentage in terms of knowing and understanding your business. You must track everything if you want to make more money.

Wes Young

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