Many different websites throw figures at you to entice you to start this business or that business. Isn’t it great to be told you’ll make sh. 40,000 a week? Or you’ll make loads of passive income while you spend most of the time at your day job being made miserable by Facebook.
The reality, though, is that there is plenty they do not tell you about profit in business. Reading about numbers is not enough. As an entrepreneur, you already know that in business things need to be well defined; not vague like the self-help industry. You should know that there are different types of profit, therefore different ways of boosting each.
The most straightforward type of profit is the Gross Profit. This is the difference between the cost of goods and the revenue from selling them. It is what you use to determine the selling price. If you have just started a new business, this is likely to be the only form of profit you enjoy (you don’t really enjoy it because it’s just gross profit).
There are two main ways to increase gross profit. First you need to improve your negotiating skills to get better prices for inputs. This will keep cost of goods low. Secondly, focus on getting more and more customers. The more money they bring in the more your business gets to sustainability fast.
The expenses of being in business eat into your gross profit to leave you with operating profit. This is an important figure because it’s what your bank is going to be interested in, when handing you that loan. All the money you spend to implement the HerBusiness tips for your enterprise is deducted from revenue. A new business will always be recording negative operating profit. So it’s really important that you track overhead costs. Do you really need an office at this stage? Wouldn’t it make sense to have the duties of your employees overlap since your business just started?
When you decide against the advantages of remaining a small business, know that your operating profit will be affected. How so? When you scale the business, you pay the higher costs even if the revenue is yet to trickle in.
This is nirvana for every business, isn’t it? Actually, there is no nirvana in business. After you achieve sustainability through the above two, you will always be stressed out with this type of profit. Always. Taxes, interest on those loans and depreciation are computed when calculating the net profit figure. It’s no wonder that you have to combine the skills of increasing revenue (for gross profit) and that of minimizing costs (operating profit) to realize this.