Oftentimes entrepreneurs start a business with a grand idea and then immediately move into action. Before you know it, we're in the thick of things and we have not taken to time to understand if our business is profitable or not.
So, Is your business profitable?
You probably don't know the answer to that question. And if you don't that's okay, because in this article we're going to show you exactly how to measure the profitability of your business and will provide you with a template (in Excel) to help you consistently measure the pulse of your business.
The first thing you want to do is get comfortable creating a spreadsheet listing all your revenue and all of your expenses. This is something that's not hard to do. Download your spreadsheet here. Once you do this you will have something called your Profits before Salary. You must do this first before your pay yourself. Most solo-preneurs do not do this.
What is Revenue?
Your revenue is all of the money you intake from sales or from the sales of your services. Your net revenue is your revenue less the costs of goods sold. For example if you are selling products that you have to buy material or inventory and then mark it up. Your cost of goods sold is the cost of that inventory or the materials you had to purchase to create the product. You may have revenue coming in from more than one source. List them all. (e.g. Book sales, speaking engagement fees, coaching fees, monthly membership fees, etc.)
What are Expenses?
Every item that you spend to support your small business. These expenses range from marketing fees, advertising fees, convention fees, business meetings, business memberships, merchant fees, parking and tolls, cell phone fees, software and online services, coaching fees, etc.
The best thing you can do as a small business owner is take some time out every month to comb through your expenses and list them out on a spreadsheet. This will make your life a lot easier at tax time.
Monthly Financial Strategy Session
Hosting a monthly financial strategy session with a business advisor is always a good idea. This will help to keep you on track to profitability. It will also help you to determine whether or not you're running a real business or just nursing a hobby. Most importantly it will help you to answer the question - Is Your Business Profitable?
Once you have a system in place, you can hire a Virtual Administrator to complete the spreadsheet and then carve out about one hour each month or each week to analyze your small business finances. You won't regret that you did.