To make a Profit, the business needs to focus, not on breaking even, not on survival, but on business profitability – literally, the ‘ability’ of the business to aim at and produce a specific dollar amount of profit as a percentage of projected gross income. Only when this is the clear business target is it possible to build a business that can deliver profit to the owner year after year. Only then can that business truly become an ongoing, revenue-producing asset for the owner. How is this done? How can a business become a profitable asset? Show me the Money! Most small businesses are inherently profitable. Depending on the business, a reliable profit of 10% to 30% of total annual sales already exists as the potential, ongoing profit return on investment of the company. But where is this Profit? Why is it so hard to see, let alone produce?
As a small business consultant for a major consulting practice, I was continually amazed at the number of small-to-medium sized companies operating with a ledger notebook and aluminum box for cash. I
In today’s job market it is becoming more and more popular to start your own business. After all the only way to true financial independence is to own your own business. When pondering the type to start and developing your Business Plan consider starting with a non- profit business.
The first advantage of starting with a NP organization is that a NP business can own a for-profit business, but it can not work the other way around. There is not any stock of ownership in a non-profit. If the for-profit business wants to have a collaborative non-profit, it would need to register the NP as a separate business entity.
As the NP business grows it can develop any number of programs. The non-profit can even develop what is called UBI, or unrelated business income. The UBI portion of the non-profit can in theory be almost any kind of business activity. For example, many youth non-profits sponsor car washes. The car wash is an activity designed to generate revenue yet is not related to the
The most profitable companies are always looking for ways to get better. When looking at a business, there are many ways to measure its success. A common mistake, most small businesses make is measuring their business performance by focusing solely on the bottom line.
For most small businesses, there are four ways to grow the business: 1) increase the number of customers who deal with you; 2) increase the number of times they buy from you; 3) increase their average transaction value; and 4) make your business processes more efficient and effective. However, the small business owner can easily lose sight of these ‘growth strategies’ when they are consumed with managing daily activities, but these are the very things that will translate into a profitable bottom line.
While the bottom line is an excellent measurement of financial success, it provides only historical information (a lagging indicator) and often masks other factors that contribute to your company’s profitability. By measuring and managing other key performance areas, you can transform a
There continues to be confusion among non-profit organizations about what the term “not-for-profit” really means and how to best conduct the “business of the business.” It definitely does not mean that an organization has a license to go broke! Technically speaking, there are several different categories of non-profit organizations, but the one most commonly referenced is the community-based charitable non-profit, or 501(c)(3). The key word in the 501(c)(3) designation is “charitable.” This simply means that the organization is providing a service to the community that is considered to be worthwhile, within IRS guidelines, and therefore deemed tax-exempt. As I have mentioned many times previously, this exemption is a privilege and must be treated as such.
Also, remember that the organization must first be formed under the laws of whatever state it will operate. In other words, an organization (usually a non-stock corporation) is first incorporated and then it applies for a non-profit designation from the IRS. For the purposes of this article, we are talking about small to medium-sized community-based organizations in the Non-Profit Sector, not churches, hospitals, educational institutions, or government-funded agencies.
I am often asked if it is okay for a non-profit to make
Whether you are thinking of starting a new non-profit or have been invited to sit on the Board of an existing charity, it’s important to know the key differences between for- and non-profit businesses – and it’s not as simple as you might think!
Legal Entity – A for profit business can take many forms – sole proprietorship is most common but you can also choose partnership, corporation or the hybrid legal form, the limited liability company / partnership. A non-profit will always be a corporation. Paperwork is filed not only with the state, but with the IRS which determines whether the corporation meets one of the many sections of the 501(c) code which governs non profits. Most charities you’re familiar with – American Red Cross, Cancer Society, Catholic Charities – fall under 501(c)3.
Ownership – The reason a non-profit is always a corporation is because no single person owns a non-profit. A for profit corporation is owned by shareholders but a non-profit is “owned” by the community it serves. The Board of Directors for a non-profit serve as volunteers and ensure that the entity remains true to it’s charitable mission. The Board of Directors in
For the past number of years there has been an ever increasing chorus of self anointed experts asserting that a not for profit organization is really just another business and as such ought to be run like one. All too often, these pronouncements are made by individuals who have little understanding of not for profits and their purpose, therefore, it’s quite easy for them to make this assumption; after all, from the outside looking in, many not for profits do resemble businesses today, so this kind of mischaracterization is understandable. And this misconception is further reinforced by the increasing professionalization of not for profits over the years; salary and benefit packages, in many not for profits today, are quite comparable to those in business, so it’s not unreasonable that these assertions continue. However, like the old axiom, “you can’t judge a book by its cover,” so is it a mistake to conclude that a not for profit is really a business simply because it may look like one.
While there are certainly a number of obvious similarities between a business and a not for profit organization, there are also a number of dissimilarities that are not so
No matter how well you enter a trade, if you never take a profit then it is all for naught. Like fishing, stories of the one that got away mean absolutely nothing compared to the big fish sitting in the frying pan. Back in 1999 an older brother of mine was sitting comfortably on over a million dollars in stocks and stock options. That is until the tech boom bust occurred in 2000. Within a few short months his wealth was reduced to a fraction of what he once owned. The impact on his financial security was so great that he even had to sell his multi-million dollar home, unfortunately before even the housing boom got underway where he might have made up for some of his losses. Like so many others, he didn’t see a need to take the money and run, he just thought it would continue to increase in value. He didn’t see a need to take a profit.
All good things come to an end and this is particularly true when it comes to market growth. Markets go through cycles where they increase in value and then the bottom falls out. Eventually they
If you have been in business for any length of time then there’s a good chance your business today is a lot different than it was in the past. Industries change and to remain successful you must change too. Your business of today may not resemble the one you described in your original business plan. You did write a business plan, right?
There’s a tendency for business owners to become lax in watching their profit centers when business is going great. Sales are growing, profits are increasing and business owners just enjoy the ride. That attitude will quickly get you into trouble when the times turn tough (and at some point that will always occur). To increase profits in both the ups and down cycles, you must be ever vigilant in identifying the most profitable parts of your business. The least profitable should be identified as well.
The key is to identify and/or eliminate products and services that are marginally profitable. Then use the resources that were going into those marginally profitable products and services and redirect them into expanding the portions of your business that are the most profitable.
Some owners wait until their
A lack of accurate Cost Estimation and Analysis results in Profits of unknown quantity and often Loss. Some Companies who are profitable still fail. Why? Profits are not necessarily in the form of cash, such as Accounts Receivable, which may presently be uncollectable. Focusing just on Net Income can be a mistake unless contingent variables are considered. It is vital that a Company sets and monitors certain Benchmarks in its Strategic Planning from which performance can be measured and tracked.
PROFIT RELATIONSHIPS AND COMPONENTS
Net Income (Profit) = Revenue (Income) minus Expenses (Costs)
a. Revenue comes in the form of Cash and Accounts Receivable.
b. There are Two Types of Expenses: Fixed and Variable
i. Fixed Expenses: incur periodically, regardless of operational effect and include items such as Rent, Insurance and Depreciation.
ii. Variable Expenses: Vary according to the level of Operations. This includes items such as Product Labor and Material, Sales Promotion and Cost of Delivery.
c. Profit Expressions:
i. Gross Income = Net Sales minus Cost of Goods Sold (COGS)
ii. Operating Profit = Gross Margin
iii. Net Income Before Tax
iv. Net Income After
In the business world, good profits are earned with customers’ enthusiastic cooperation. A company earns good profits when it so delights customers that they not only come back for more, but also refer friends and colleagues. In contrast, bad profits are earned at the customer’s expense. Whenever a customer feels misled, mistreated, ignored, coerced or disrespected, then any profits resulting from that customer are considered bad.
According to Robert Morpheal, a Canadian writer and philosopher,” ignoring this basic understanding of good and bad profit, in our modern world we have seen more and more equation of “good” with “profit” as if the two words mean exactly the same. If there is no profit, it cannot be good. If there is profit it must be of some good. Profit and good in terms of being an increasingly absolute value have become regarded as more and more synonymous (meaning the same).”
This means that if something is losing money, or not making profits, it tends to be regarded as something that ought, morally, to be given up, in favor of what does make money, and is profitable. So we regard the closing down of activities, enterprises that are
Most companies underestimate the costs associated with not listening to the customer-archaic, redundant processes and poor quality-not mentioning their impact on profits. The reason is simple: they are unable to attach a value to the full financial impact of those costs. As long as they fail to see the value, however, the notion that poor process performance and profits are not linked will continue to persist.
In their book The Profit Zone-How Strategic Business Design Will Lead You to Tomorrow’s Profits (Random House: 1997), Adrian J. Slywotzky and David J. Morrison define the profit zone as “the arena of a company’s activity where high profit happens… The profit zone is where sustained, superior profit creates enormous value for a company.” It is my contention that a process focused business organization can provide the “sustained” and “superior” profits that create the immense value that stakeholders cherish.
Slywotzky and Morrison say there are 22 different business models that explain and quantify the mechanism by which high profit occurs. Three are clearly tied to a process focus and lead to superior profits. They are:
1. A Customer Solutions Profit Model
2. A Time-Based Profit Model
3. A Low-Cost Profit
Don’t be ashamed if you are.
It’s not your fault… You did not do anything wrong.
Those bad profits were so easy to get and made an awfully enticing allure to your short-term bottom line. Unfortunately, they are not as simple to keep and ultimately will have a devastating effect on your ability to sustain profitable sales growth.
Bad profits are profits that are earned at your customers expense. Many companies try to boost short-term profits by exploiting customer relationships by raising prices under the guise of self-portrayed quality issues or other unsubstantiated reasons. Or they often cut back on services or staffing to save costs and boost profit margins.
Instead of focusing on product and service originality to improve value for customers, companies often boost bad profits by channeling their creative energy into finding new ways of extracting value from customers.
No matter how big, unique or special your company is, no one can do that and achieve sustained growth, because your customers will become pessimistic and convert into doubters, then cynics and eventually into detractors.
These newly converted detractors are your loyal customers who now feel so
If you have a business idea, or an idea for a service for your community, there’s one decision you must make early on: are you going to structure your project as a for-profit business, or as a non-profit corporation?
Now, it may be that you already have a clear idea about this. Some business ideas are clearly “for profit”. For example, if you want to sell insurance, or stocks, that’s undoubtedly a for-profit business. On the other hand, if you want to raise money for research into a cure for juvenile diabetes, that project will best be served by forming a non-profit corporation.
One difference between for-profit and non-profit organizations is that grants funding is generally reserved for non-profits. Some grants are available to for-profits (and to individuals), such as government grants to promote affordable housing or job creation in economically depressed neighborhoods. Most grants, however, and particularly grants from foundations, are given only to non-profit corporations designated by the Internal Revenue Service as 501(c)3 corporations.
In many cases it is not so easy to determine into which category a business idea should fall. One question to ask is: will my planned project deliver a
There is a big misconception with first time business owners and entrepreneurs about non-profit businesses. Many first time business start-up owners think that they would rather start a for-profit over a non-profit because they want to make money. The thought is that they do not want to start a non-profit because they (incorrectly) think that non-profits cannot make money.
The fact is that there are more streams of revenue in a non-profit organization than a for-profit business. Although not all types of businesses are eligible for the non-profit tax-exempt status, there are some types of businesses that can easily be formed as a for-profit or non-profit. Perhaps the best example is a child day-care center. Regardless the type of business entity the child day care center can charge the same rates and fees for the same services. The staff can receive the same rate of pay and benefits. The same profits (surplus) can be gained.
In addition to generating the same revenue through the sale of products and services the 501c3 non-profit can receive tax-exempt donations from fund raising, in-kind donations of products and labor (volunteers), endowments, and grant funding. The 501c3 tax-exempt organizations are also
The new “martial art” of Quantum Profit Management codifies the wisdom and knowledge of the ancients in the technology framework of the present and future.
As such, accepting and conforming to these simple principles will transform your business into a high-performance market leader.
1) Understand that You’re Making More Money than You Know. You have internal profits generated by the most profitable items sold to the most profitable customers. Most internal profits are consumed by the parts of your business that lose money, leaving only the tip of the iceberg on the bottom line. Retaining more internal profits can and will deliver 4X to 10X your best earnings – with no additional sales.
2) Measure and Evaluate at the Quantum Level. Scientists discover how the world works by breaking it down to the quantum, or smallest possible, level. Do the same in your business, and you’ll discover perfect profitable strategies for every piece.
3) Measure on Net Profit. Nearly everyone uses Gross Margin rates to evaluate sales, products, customers, etc. In practice, Gross Margin rates are a poor indicator of profitability and can lead to equally poor decision making. Use Net Profit instead.
It’s not everyday that someone wakes up and says, “I think I will start a non-profit organization.” Starting a business of any kind usually takes years of thought and planning before it can go from the concept on paper to the working model. It usually starts with a desire or a calling to provide a product or service. Then the next step would be to determine the best corporate structure for your business. There are a variety of ways to structure any business whether it is a partnership, a limited liability corporation or a sole proprietorship, but for our purposes we will focus on a simple US domestic corporate structure that is typical of small start up companies. These types of corporate structures will either be for-profit or non-profit in nature. A for-profit corporation is one that is designed to provide a product or service to the public in order to make a financial profit.Non-profit corporations, although they may make a profit on paper, their purpose is to provide a service or product that serves a human need or that is beneficial to a targeted group or cause. Often for-profit corporations create their own non-profits companies and foundations
The basic foundation and ultimate goal of most businesses is to generate profits from which business growth can be realized. Profit generally is the making of gain in business activity for the benefit of the owners of the business. Just like the blood that circulates throughout the body, profit is vital to the existence and expansion of a profit-seeking organization. Computing this profit is significant because it is from the result of the computation that one is able to make important decisions in the business.
Economic Profit is different from Accounting Profit.
Economic profit is the increase in wealth that is made from an investment, taking into consideration all costs that are linked with that investment including the opportunity cost of capital. Accounting profit is the difference between retail sales price and the costs of acquisition (whether by harvest, extraction, manufacture, or purchase).
Computing Business Profitability affects many decisions made inside the business and externally also. How does business profit affect a business?
a. Taxation – your profit will determine the amount that is paid or not paid for taxes.
b. Business Growth – this is normally determined by how profitable a business is or
The first step in the preparation of the profit and loss statement is to ensure that all income in form of sales or other revenues and expenses is properly documented. The records that are used for this purpose are cash receipts to customers, invoices, debit notes, credit notes, bills cash receipts from suppliers, and any other documents that are used to recognize the revenue and expenses transactions. Postings of these source documents goes to the books of original entry that have totals for each category of items.
Accounting standards have recommendations for the formats that are to be used in the preparation of the financial statements including the profit and loss statement. Readers are advised to refer to International Financial Reporting Standards (IFRS) and particularly International Financial Reporting Standards 1 – First Adoption of International Financial Reporting Standards and International Accounting Standard 1 – Presentation of Financial Statements. These standards give guidance on how to prepare and present financial statements. In preparing the profit and loss statement, the totals from the ledgers for the particular items are presented line by line.
Books of Original Entry
The books of original entry
If you are looking to make money from home, the solution you need is to develop a legitimate home income profit system. The goals are simple. Stay Home. Profit. Income System. These are the three main components.
To many, this may seem like a dream. Actually, for many it is a dream. The dream is to make enough money to live on without ever leaving the comfort of your home. The question then becomes, does it really work? Is it really possible? The answer to those questions is, yes. It does work. It is possible.
What is not possible is going from zero income to making thousands overnight. If some is trying to sell you some magic system that runs on autopilot, run the other way. I am always leery of those ads that claim you can have overnight riches. Have I been tempted by them? Of course. The sales pages are splashy. The promises are grand. Many times they often have a money back in 60 days guarantee. If you dig deep enough, however, more often then not, it is a home income system scam and not a legitimate opportunity.
There are however, real
First things first
There are many terms used within the financial industry over the years when discussing profit, loss and budgeting. Using a budget for management decisions like we do now is a fairly recent use, starting around the 1970s, where non-financial managers needed to interpret budgets in detail.
What is revenue?
Revenue is all the income that is generated from your business activities. Sometimes it can be referred to as income, inflows or sales in different contexts. For the sake of this article we will use revenue as money coming in without trying to separate how or why it is coming into your business.
Isn’t revenue my profit?
I witnessed a business owner taking large amounts of cash out of his registers each night of successful trading to go out on the town with his friends. He was spending thousands each week doing this before he went broke three months later.
He thought that all that money in the till was his money to spend. he didn’t realise that it was not all his to spend. Your money is the ‘profit’ left over after all expenses have been paid.