understanding net profit

So well done on being in business for yourself! Now it is time to judge your financial success. You may be working with purpose, in your area of passion or just had a change of lifestyle and decided to start your own business. Whilst these areas are fundamentally important and personally satisfying you need to measure the financial success of the business.

As business owners under the financial title comes a multitude of different areas including sales, cost of goods, income tax, balance sheets, assets, liabilities and the list goes on. The best indicator of your financial success is your net profit.

A successful net profit sits between 12% - 33%.

Understanding these terms...
So net profit is the amount of money remaining following sales (total amount of revenue) less expenses (the amount of dollars spent). Expenses include taxes, loans, rent, and all the other associated business costs that are included in running your business including your wage.

Therefore if you have turned over a $100,000.00 this year and your net profit is at $12,000 or more and you have paid your taxes, all your business expenses and most importantly yourself then you have a financially successful business.

Now the exciting component for business owners is what that $12,000 can represent. Firstly if you wanted to sell your business a fair asking price would be 2 to 3 times the net profit of your business. So $24,000 to $36,000 for the sale. Secondly if you want to start a wealth creation plan than there are many great tax minimising options available. Thirdly if you want to borrow money from the bank then net profit (and wages) are the figures banks consider in lending money. Generally a 10% deposit is required for borrowing so $12,000 becomes $120,000 upon approval from the bank. Finally if you aren’t at a 12% minimum of net profit then you would be better off financially getting a job and putting your money in the bank at 8% or 9% without the business owner challenges.

Your scorecard for measuring your net profit is your profit and loss statement. Most fitnesspreneurs switch off when these kinds of accounting documents are put in front of them. Profit and loss is the financial indicator of your business. You don’t need an accounting degree you just need to know your bottom line.

Start seriously looking at your net profit if you want to get ahead financially.