Don't make money, make a profit
Written by Amanda Rose, ESBWA Founder & CEO
In small business every sale or new customer is its own little victory. However, just because you are making sales or signing clients doesn’t mean you are making a profit. In fact, it doesn’t even mean you're breaking even!
I've founded multiple businesses. One made a profit within a week, but another took 2 years. Even though I was prepared for that potential, it was still painful. And it's a reality for many businesses.
This is why knowing your numbers is so important when running a small business. It's also why you need to change your mindset from “making money” to bringing in a profit. Profit allows you to plan ahead and also tweak your pricing accordingly.
Do you truly know how much it costs to create your product or deliver your service?
Things to consider:
- Taxes (company, personal, BAS)
- Superannuation
- Employee costs
- Contractors costs
- Supply costs
- Overheads (like electricity and rent)
- Time costs (your actual time creating and/or delivering something)
All these things add up. My personal rule of thumb is that I only get 1/3 of what I charge a client. Out of that third I need to pay myself as well as invest in the business.
Now think of what you are charging. Is it enough?
Your break even cost should cover all of the above things. Anything on top of that pays you, plus gives you a profit to save. That's right: you need to pay yourself and have enough left over to save. That is how you keep growing your business.
This profit will provide a financial buffer during difficult periods and will also allow you to invest in your business for growth if needed. You can’t keep going into debt. You need to be alert at all times, focusing on the profit margin for everything you do.
So take the time to look at what you do. Examine the numbers. Make an appointment with an accountant or qualified bookkeeper and learn what you need to learn to ensure you are charging what you need to be charging.
Business is about making a profit, not losing money.