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Friday, August 5, 2016

Owning A Small Business

It's very easy for virtually anyone to start a business today. Between the availability of information on the Internet and the ease of access to distributors online, the process is much easier than it was in the 1900s. However, not all small businesses prove to be profitable. Unfortunately, many businesses wind up failing within the first two years. How can you tell if you're actually making money?

What is Your Net Income Per Month?

Net income is the amount of money you have left after paying all other bills. Rents, cost-of-goods sold, utilities, insurance, taxes and more all play into this amount. Some business owners will pay themselves at the end of the month depending on the net income to make sure the business has it's own bills paid first and foremost.

If you do $6000 per month in sales, it may sound like a lot of money. However, you need to take into consideration all the other expenses that go into keeping your operation afloat. If you have a 35 percent markup on the items you sell, this means you only have approximately $1550 to spend on the other bills while trying to make sure you get paid as well.

This is only an example, however. The markup for goods or services you provide could be much greater or even lower than 35 percent. The point is that you can't look at the gross sales for the month if you want to gauge success. Even if you do millions of dollars in sales per month, it may mean nothing if your bills are too great.

Is Your Time Worth the Investment?

After all bills are taken into consideration, it's time to analyze whether or not the business is worth your time. Take the net income before paying your wages and divide it by how many hours you put into working. Is it lower or higher than if you were to work a regular full-time job? In many instances, this number could be incredibly higher than if you were to work for some local company. However, you won't truly know unless you crunch a few numbers.

Owning a small business takes a great deal of work. While some platforms might be easier to operate, they all take a great deal of accounting to determine if they are profitable or not. When you operate a small organization, such as mall kiosks, a lot of these expenses could be eliminated as the overhead could be greatly reduced. In either case, you need to monitor just how much you're paying for everything related to the function of the business before you can truly say that it's profitable.
 

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