Profit vs. Revenue
Does your business know the difference between profit and revenue?
At the end of the day, most businesses exist to turn a profit no matter what their core concept is. To that extent, it makes great sense to focus on Maximizing Profit. However, many small business owners confuse profit and revenue. Let’s clarify that right away. Revenue is ALL the income a business generates from its sales, services, etc. Profit is revenue LESS expenses, taxes, operating costs, unit costs and so on. In other words, revenue is usually more impressive. Profit is the reality.
As a small business owner, many factors impact your ability to generate revenue and profit. History is littered with small (and not-so-small) businesses collapsing from not making a profit. Here are some simple tips to get your business started on Maximizing Profit:
Plan- You cannot plan for everything that can conceivably happen, but with proper planning, a major event can become manageable. Most major events come as a total surprise and can easily ruin your business if you are not prepared. When you have a serious issue confront your business, will it be manageable or the end of your business? Planning helps provide options to help save the day.Track your Return on Investment (or ROI)- Do you know what your money is being spent on? Many small business owners do not. Part of Maximizing Profit requires you to track expenses. Learn how your advertisements are working. Know what your products cost, and how much expense it takes to sell them.Track Your Reinvestment Rate- We’ve all seen it before. A new business starts and they have a great first year. And at the end of the year, they excitedly proclaim “I made $120,000 this year!” Great right? Unfortunately after talking to this business, it became clear they had spent MORE on getting set up than they made! Not knowing what percentage of revenue you are reinvesting into your business makes Maximizing Profit downright impossible!Remember that Time is Money- When it comes to Maximizing Profit, many small business owners either find themselves tempted to pay themselves too much or too little. Don’t fall into this trap!Get a Line of Credit (or LOC)– You may not need a Line of Credit now, but who knows when you may need one? The best time to obtain a LOC is when you don’t need it, since you look better on paper to a bank.Avoid Alternative Lending– Making sure you understand your loan, shop for rates and obtain a fair terms can be essential for Maximizing Profit.Prepare for Taxes- Prepare for the IRS. Do not be that business that forgets to file. You cannot beat the IRS, and the IRS can potentially pursue personal assets if the owners of a business can be found to be guilty of tax evasion or the IRSpierces the corporate veil.INVEST IN LEGAL EXPERTISE: Think of good legal care like healthcare, preventative maintenance is far better than picking up the pieces in a catastrophic disaster. Investing in some sound legal help now can be key to Maximizing Profit down the road.
Find a Good Accountant
Probably most important of all, is to remember to consult with a good accountant or CPA (PLEASE LET US KNOW IF YOU NEED A REFERRAL), who can help you classify your expenditures properly, reduce what you pay to Uncle Sam, and make sure you’re managing your money, revenues and expenses, effectively. Don’t forget to use the “right tools” for the job, and don’t try to use an accountant for legal advice and visa versa. Share your business plan and financial strategy with your CPA. Ask them how they can help you achieve your goals. If they are unable to provide you with an answer — call us. We will be happy to share a list of CPAs our firm personally vetted.