What is Profit?
What is profit? Profit is gross sales, the sales that are coming into your business minus any costs of goods.
For example, if you’re selling any type of inventory, the supplies for your product, your contractors, your wages, subscriptions, advertising, all of those are operating expenses that get subtracted to arrive at your final number, which is a profit or a loss.
Then, look at how you got to that number. If your business is taking a loss you might need to ask questions like; where am I spending the most money? Does my spending support my goals? Am I not bringing in enough revenue?
If you are at a profit above 30% start with questions like these; are you hiring? Are you doing enough for professional development? Are you doing enough in possibly launching new revenue paths?
Cash is king, or queen, as we like to say.
Cash flow is the amount of cash moving into and out of a business at a specific point in time. Cash flow can be positive or negative.
Your business’s cash flow is really important, especially if you’re structured as an LLC, because when you pay yourself as a business owner, you’re paying yourself through owners draws, so you can be profitable. Going through owners draws means that you’re not a business expense to your business.
If you are taking owners draws from your business, and you are consistently having a cash flow issue, but showing profits, it’s time to start to look at becoming an S corp, talk to your tax code and talk to your bookkeeper!
Want to gain a greater understanding of your business’s numbers? Schedule a free strategy call with us!