There's a lot of talk online about what entrepreneurs are making. They tote "6 figure businesses", "multiple 6 figure businesses", and "7 figure businesses". This can be misleading because what they aren't talking about is profit.
While it's cool to bring in $600,000 of sales in your business, if it costs you $850,000 to make those sales then it's not so impressive anymore, is it?
To me, profit is much more impressive than sales and we're going to be talking about how to calculate your profit (or loss) and 3 tips to keep it simple and even fun!
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Calculating profit isn't complicated and it's a really powerful number to understand in your business. We are all in business not just to make sales, but to actually profit, in order to sustain our business.
Unless you have some sort of trust fund or another source of income to continuously fund your business, if you aren't profiting your business is just waiting to collapse, and we don't want that.
Profit is what you're left with after you pay for all the costs of doing business. It's simple. Sales - costs = profit. If your costs are greater than your sales, then you're operating with a loss instead. If you're using bookkeeping software, this number is shown on your (appropriately named) Profit and Loss Statement.
If you're not using bookkeeping software, then you need to come up with a system to track profits yourself.
Do you know what your profit is? If not, this is your first step in figuring out how to increase (or finally start making) profits in your business.
Most small businesses fail, and one way to prevent this from being your reality is to get serious about your numbers, tracking your sales and costs to calculate your profit (or loss) and making adjustments to increase your profits so the doors to your business stay open!
The first step to tracking your profits simply is to keep it separate. Opening a separate business only checking account and using it exclusively for business is the best way to do this. This gives you one source to funnel all your sales and costs in and out of. Business is complex in 2019, with a lot of different ways to accept payment, but don't over complicate it.
If you accept PayPal in your business, make sure it's being deposited to your business checking account. If you sell on Etsy, make sure you're linking your business checking account to have funds deposited. If you're using Stripe, again, connect it to your business checking account.
Same goes with your costs. Set up all recurring payments out of your business checking account and make sure you're keeping your debit card on you for those one off purchases that you make on the go. If you're going to Target and buying some stuff for your house as well as office supplies, separate the transactions and swipe the right card for each purchase.
This doesn’t have to be expensive and it doesn’t have to be a true business account. Even if you open up a personal checking account that you use just for business, it will do the trick.
No matter what system you use, just be sure to keep it separate.
Knowing your numbers is crucial so you can find ways to increase your profits, but it should be quick and painless and not take you away from income producing activities. No one has time to sit and tally up your costs by hand each month. We have systems and software available to make this very easy that you should be taking advantage of so you can painlessly see your numbers.
If you're using tip 1 and using a business only checking account, then you just need to log the sales for the period and the costs by category for that period.
I really love bookkeeping software, as it can largely do the work for you with the right set up, but there is a monthly cost involved that some starting entrepreneurs are hesitant to sign up for. If you ask me, the benefits far outweigh the costs. My favorite bookkeeping software lately is Xero. I love the way it integrates with PayPal and other applications and it's very intuitive to use, especially for non accountants.
For a more budget conscious entrepreneur, I also created a powerful Google Sheets spreadsheet, the Profit and Loss Workbook, with a tab for each month where you simply enter in your sales on one side and costs on the other. You give each cost a category (such as office supplies, utilities, telephone, etc), and on the same sheet, it will automatically total your sales and sum up your costs by category, then calculate your profit or loss for the month.
My favorite part is that with zero work, it automatically takes the info from these monthly tabs and adds it to tabs by quarter and one for the year to show you your progress for each quarter or year, with a summary of each month on one easy to read page. You can see this being demoed and buy yours here.
The best way to track your profits is to do it monthly. I know it's easy to get behind and feel like this isn't a priority, but in reality seeing your profits (or loss) monthly does wonders for changing your strategy to increase your profits and it's essential that you check on this each month.
Falling behind also does damage to our mindset, as we start to feel too overwhelmed to catch up. You cannot succeed as an overwhelmed entrepreneur so make sure you're staying on track each month.
If you're looking for a way to be held accountable and stay on track monthly, see if you're a perfect fit for the Number Boss Community. Each month, you get reminders to set your goals, track your progress (with a specific checklist of what to do) and important tax deadlines for the month. You also get 50% off monthly trainings, and can even save $50 on your Small Biz Starter Kit.
It's time to use what you've learned! If you don't already have a separate business checking account, this is your first step. Then you'll need to block some time and play catch up by noting your sales and costs through today. Finally, get on track monthly so you can start seeing your profits and using the story the numbers tell you in order to increase them and live the life you dream of, are capable of, and deserve.
Be sure to stay in touch and check out my free resources. The best place to start is by getting your Free Starting a Biz Checklist to make sure your business is set up right and you haven't missed a step that could cost you a lot of money or potentially cripple your business.
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