Do You Have a Profitable Business?
As a business owner, you spend a lot of time, effort and money bringing in revenue but, revenue production does not necessarily mean that you are operating at a profitable level!
It could be that you are making some sales but they are not adequate to cover your expenses. Another possibility is that your profits are too small to pay for the time and effort you spend keeping your business running.
Evaluating your profitability is an important facet of operating any business. You have to know your numbers, manage your cash flow, measure your profit and loss, determine your break-even point, and understand all the financial aspects of your business.
This can be particularly daunting for any business owner — but there are fast and easy ways to master your numbers. Here are two questions you can ask yourself before you get started:
- Am I significantly above break-even level? Your break-even number is the amount you spend to run your business on a monthly basis. It includes both fixed and variable expenses like building lease, wages, supplies, and other items. To be profitable, your revenue production must be higher than your expenses. Pull up your last 3 months’ worth of expenses, and compare it to your income. If you can answer yes to this question, then you are profitable. If not, it’s time to dig deeper into the numbers to determine what’s really going on — and take some serious steps to correct it.
- Is my business a worthy investment? You invest your time, effort, heart and energy into your trades business — but is it providing you a satisfactory return? How many hours are you working each week? What kind of salary do you receive? You might be profitable, but if you’re struggling to maintain the time and emotional investment required to stay that way… it’s time to restructure!