FINANCIAL MANAGEMENT - PROFIT

Net profit is the bottom line - it’s your report card! A responsible estimate will include a reasonable amount for profit. If your estimate is complete and you manage your company efficiently, you don’t need a lot of profit to stay in business. A reasonable profit margin would be 15 to 20 percent of break-even cost.

Profit is perhaps the least correctly understood item by the most number of people, particularly employees in a business. Profit is typically less than the cost of labor, materials, or taxes. The biggest potential decrease of profit is labor, but that is another and long story. For now, let’s review many factors that have a significant impact upon the achievement of a profit, and then let’s consider things that can help you make a profit.

Factors required to achieve profit:

How to make a good profit:

Profitability has several added benefits besides the obvious. It will help you establish bank credit and earn employee confidence. Once you’re established, seven out of ten years in business (on the average) are profitable. You must build up financial reserves to offset the financial losses that may occur during the bad years.

Just remember - your profit should reflect the value of your work, and produce a realistic profit margin. Be consistent!

NOTE: For additional information, be sure to review the newsletters on Job Costing (#51 & 52), Markup (#53), and Sales (to be published later) in this series of articles on Financial Management.

Mike Holt’s Comment: This newsletter was extracted from my Business Management and Management Skills’ Workbook. Watch for our next newsletter, and as always, we encourage your comments and feedback. Send us your real-life experiences. Please respond to Barbara@mikeholt.com.

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