Free Book: How to Maximize Your Business Profits

Making a profit is the most important - some might say the only - objective of a business. Profit measures success. It can be defined simply: Revenues - Expenses = Profit. So, to increase profits you must raise revenues, lower expenses, or both. To make improvements you must know what's really going on financially at all times. You have to watch every financial event without any kind of optimistic filter.

This guide will help you analyze your profits, their sufficiency and trend, the contribution of each of your product lines or services to them, and will help you determine if you have the kind of record system you need.

Table of Contents

1. Introduction
2. Are You making A Profit?
3. Financial Ratios
4. Sufficiency Of Profit
5. Trend Of Profit
6. Mix Of Profit

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Sample Content

Making a profit is the most important - some might say the only - objective of a business. Profit measures success. It can be defined simply: Revenues - Expenses = Profit. So, to increase profits you must raise revenues, lower expenses, or both. To make improvements you must know what's really going on financially at all times. You have to watch every financial event without any kind of optimistic filter.

This Guide is a series of questions with comments to help you analyze your profits, their sufficiency and trend, the contribution of each of your product lines or services to them, and to help you determine if you have the kind of record system you need. The questions and comments are not meant to be definitive presentations on the subjects. They are meant to point to areas where further study might be - well - profitable.

Are You making A Profit?
Analysis of Revenues and Expenses

Since profit is revenues less expenses, to determine what your profit is you must first identify all revenues and expenses for the period under study.
1.  Have you chosen an appropriate period for profit determination?
For accounting purposes firms generally use a twelve month period, such as January 1 to December 31 or July 1 to June 30. The accounting year you select doesn't have to be a calendar year (January to December); a seasonal business, for example, might close its year after the end of the season. The selection depends upon the nature of your business, your personal preference, or possible tax considerations.
2.  Have you determined your total revenues for the accounting period?
In order to answer this question, consider the following questions:
What is the amount of gross revenue from sales of your goods or service? (Gross Sales)
What is the amount of goods returned by your customers and credited? (Returns and Rejects)
What is the amount of discounts given to your customers and employees? (Discounts)
What is the amount of net sales from goods and services? (Net Sales =  Gross Sales - Returns and Rejects + Discounts))
What is the amount of income from other sources, such as interest on bank  deposits, dividends from securities, rent on property leased to others? (Non-operating Income)
What is the amount of total revenue?(Total Revenue = Net Sales + Non-operating Income)