How Do I Make Sure I’m Making a Profit with My Business?
Unless you’re lucky enough to be Rent the Runway running at and IPOing at a loss (!) then you usually need to be profitable. In short, that means taking in more money than it costs to exist. We approach that rather pragmatically:
Every business is a little different but speaking broadly, you’ll want to compartmentalize your analysis in monthly and quarterly compartments:
Jan, Feb, March, etc
Jan - March, April- June, etc
First and the MOST importantly, is having your numbers correct. And from all the stories I hear over the 17 years of being a CFO - and continue to this day - I want to emphasize this means to be 100% certain about this. It seems too easy to assume that another did an accurate job.
AS AN BUSINESS OWNER, IT IS YOUR JOB TO MAKE SURE YOUR COMPANY HAS MONEY AND IS BEING FISCALLY RESPONSIBLE.
How do we check? This part is pretty easy - run a “Income Statement” (aka Profit and Loss) report in your accounting software.
*If you don’t have accounting software that can do this - that’s your first step - contact me immediately 😊
Have it compare by time periods, let’s start with months. You should see something like this:
Income Statement
At it’s most basic, the top has all the money that comes into your business and the bottom is the money going out.
This is how you can see your sales and revenue vs. your expenses for each month. Spend some time looking over each, drilling down and looking at the detail, verifying everything looks correct.
If you’ve never done this - and as a small business owner, you should - this will be very enlightening.
On a scale of 1-10, 10 being perfect - how did this go?
If this went say, 7 and up - let’s move on to the next step.
This is where things get a little more complex. We need to figure out what each job/project/item you are selling is costing.
The equation we are working towards is:
money in from sales
minus
(Cost it takes to produce things + how much it costs for your business to exist)
The key here is that the sales can’t just cover the item/job, etc - it needs to cover “operating expenses” - what it takes for your company to exist as well.
This is also known as your profit margin.
In the same fashion that you looked at your income statement, depending on the type of business you have, you also need to look at your individual projects in the same breakdown.
The Income Statement report gave a good idea of what dollar amount you need per month to be profitable (cover the average monthly expenses for the year) and make sure the multiple projects have that, even if spread over a few months.
But since you know what your monthly one number (that dollar amount from first sentence) is now, you can quickly look to see if you’re making that profit.
And going forward, you know the numbers that you don’t even get out of bed for unless you hit that. That’s some boss vibes right there.
In addition, you should take the actual activity from that report and make a budget (something made for the year and adhered to).
Now that you know how to make a profit - go get ‘em tiger!
