Being profitable in a business. What does this mean? Well, it kind of depends on the business. Some businesses will need to be making millions of dollars in profits before they think they are profitable. Others will see a $1,000 profit as a huge win in their book. So, what does being profitable mean in your business?

Only you know the answer to that! I can tell you that being profitable doesn’t only correlate to the revenue you are bringing in or your net income after expenses. Being profitable also means: 

  • You are planning your expenses, so you are not spending every dollar you bring in each month. 
  • You are constantly bringing in enough money to pay yourself and your employees every month. 
  • You have an excellent quality of life, because you are not working 24/7.
  • You are setting aside revenue each month as your profits. 
  • You aren’t stressing out about how much money your business has, because you have control over the money coming in and going out. 

Do you see why being profitable can be different for every business? 

Being Profitable in Your Business

If you are looking to see if you are truly seeing profits in your business, all you need to do is check some of your statements. The most important statement is your business’s gross profit statement. The gross profit for your business is basically all your business’s revenue minus its direct costs. 

Your revenue will always be from your sales or services. The direct costs for your business include any costs that are related to your business generating an income. Direct costs do not include rent, salaries, office supplies, or any of those other expenses that are not directly related to earning money in your business. Those are considered overhead expenses.  

It is important that you understand the difference of all of your expenses, because it will allow you to truly see whether your business is being profitable. 

If your business is actually profitable, your gross profit will not only cover your direct costs and overhead expenses, but it will have you seeing money left at the end of each month. Or quarter. Or year. 

If you aren’t seeing money leftover after paying for your direct costs and overhead expenses, your business might not be as profitable as you would like. Now, if you are seeing some of the other profitable measures I mentioned above, you may still be headed in the right direction. You may simply need to make a few changes to ensure your business is as profitable as it should be. 

Changes to Make to See More Profits in Your Business

There are a few things you can do to see more profits in your business. They may or may not be helpful in your situation, but it never hurts to give them a try, especially when it comes to the goal of profitability. 

1.  Change Your Pricing Strategy

When you created the prices for your products or services, you may not have taken everything into consideration. I recommend reverse engineering your prices, so you are covering all of your expenses, making a profit, and still charging what people are willing to pay. 

By adding up all of your expenses each month, including what you want to make in profits, then multiplying it by twelve, you will have an idea of how much money you need to make each year. Then determine your price points for your products and services from there. 

For example, if you need to make $500,000 this year and you are selling a service for $100, you would need to sell 5,000 services this year. Now, that may seem a little unrealistic. In that case, you may want to consider raising your price to $200 for the same service (if it is worth that price), because then you would only need to sell 2,500 services to reach your goal. 

Obviously, your business numbers are not going to be that simple. But you can see where I am headed with this. 

2.  Change Your Marketing Plan

Sometimes, business owners struggle with turning a profit, because they are attracting the wrong clients or customers. If that is the issue in your business, you may need to tweak your marketing plan. Start by considering who your ideal client or customer is. Narrow it down by asking yourself questions, until you have a concrete answer of who you are trying to sell your products or services to. 

Then create a marketing plan that will attract those people, so you can see your profits finally soar. 

3.  Start Tracking Your Business’s $$$

You may have no idea how much money you are making or spending each month because you simply aren’t keeping track. One of the best ways to increase your profits is to start tracking your business’s money! 

I recommend updating cash flow statements and income statements once a week. Some people will tell you to do it on Mondays. I won’t tell you that it needs to be completed on a specific day though. Maybe your worst day of the week is Mondays and you know you can never squeeze that in. But I will tell you to choose one day a week, your slowest day, and pencil in tracking your business’s money on that day. Then consistently taking the time on that day to take care of your business’s finances. 

You will be surprised at how much you will learn when you actually pay attention to where the money is going in your business. You may find expenses you no longer need. You may even find a way to cut expenses. There are so many ways you can turn this one simple step into more profits for your business. 

Every business owner should determine how profitable their business is on their terms. Newer businesses will have a lower profit margin, money-wise, than most older businesses. But they can still claim profitability success if they have reached the point where they no longer need to work 24/7 to keep their business running smoothly. 

Do you need help tracking the money in your business? Contact the office today to schedule a meeting and see how we can help you.