GUT CHECK!
The basic formula for profitability is
Income – Expense = Profit. It’s not a complicated formula, and to make it even easier, we’ll start by looking at two main questions:
The formula to find this out is: Income –
COGS =
Gross Profit
If you have your Profit and Loss statement in QuickBooks or another program, click here to use our easy form. If you need to create a P&L and Balance Sheet, click here to download an Excel file.
| If your Gross Profit is positive, move to the next question. |
If not—HERE’s your problem! A few ideas to think about:
- Increase price
- Decrease costs of product
- Make sure you understand the impact of all discounts you offer
- Kill the product
- Consider closing
|
The formula to find this out is: Gross Profit –
Expenses =
Net Profit
Don’t forget to include all the expenses to run your business – rent, administrative staff, cars, phones, electricity, janitors, etc.
[guidesub type=yes]What we want is positive Net Profit. If your Net Profit is positive, move on to the next module.[/guidesub]
[guidesub type=no]If your Net Profit is negative — HERE’s your problem! A few ideas to think about:
[/guidesub]
Profitability is a very large piece of the business puzzle. In this section we are focusing on it as part of the cash flow equation, but to look at the main issues that affect profitability, click here!
Are you selling your product/service for more than you made it for?
Return to the Cash Flow module