Tips for New Business Owners – Gross Profit and Net Profit
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Do you know your numbers? What does that even mean anyway? Hi this is Judi Otton with GrowthCast and I am back with your Fiscal Fitness Tip of the Week and today we are continuing our series for new business owners. Last week we talked about having a real, grown -up, professional accounting system. This is one of the ways that you’re going to use that system. I want to talk to you today about two numbers that I want you to be looking at right from the start of your business experience. The first one is Gross Profit. Gross profit is the money that you have left over after you’ve paid for what you’re selling. So if you’re selling a product for $100 and the product costs you $25 your gross profit is $75. Similarly if you’re selling a service for $100 and it costs you $25 to deliver the service, again your gross profit is $75. I want you to make sure that you include if your service company include your own time very valuable include your people’s time. If you’re a product company include any if you’re doing installation or if you’re doing delivery or if they’re shipping include those costs as well to look at your gross profit. This is going to be very important because this is the money that’s left over for you to pay all of your overhead expenses and that leads us to the next number that I want you to pay attention to and this is Net Profit. Now when you’re first starting out your net profit maybe negative and that’s okay, but you want to get to that break even point as quickly as possible. So just quickly your net profit is your gross profit that money left over after the sale minus all your other expenses your rent your insurance your payroll that’s not directly related to delivering a product So pay attention to those numbers every month. You’re going to track them over time and they’re going to get better and better and better. Stay tuned next week for another Fiscal Fitness Tip of the Week especially geared for you brand new business owners. Take care