As I was trying to come up with a smart biz post today, I came across a post about profit, something that has been on my mind since NSS. I’ve been a little busy designing my new website (more on that later) and gearing up to show you all my new products so I’m glad that Megan’s post can stand in for my own today. Here’s what she has to say about profit:
“Since we’re talking about profit on CMBA this week, I want to make sure we’re all on the same page when it comes to understanding what profit actually is.
First off, sales are not the same thing as profit. When you look at the amount of revenue your business has taken in, this is your gross sales. In simplest terms, profit is what is left over after you subtract all your business expenses from your gross sales.
profit = sales – expenses
Now, if your business has employees that you pay, whether by hourly wage or salary, the cost of paying them counts as an expense of the business. But as a sole proprietor (or sole owner of an LLC), your salary does not count as a business expense. You are free to take money from your business at any time to spend on personal expenditures.
Which means that in your business, profit plays two roles:
- Money to expand the business.
- Money for you to live off of.
One of the crucial steps in developing a culture of profit is to switch from a focus on number and amount of sales to a focus on profit, not sales. As you develop your financial goals, start thinking in terms of profit. Ask yourself, how much profit do I need to make each moth to have a comfortable living? And, how much profit do I need to take the next step in my business?”