Assessing the Health of Your Business
How Profitable Is Your Business Really?
Description:
This week, we’re diving deep into understanding the true profitability of your business. Most of us wait until tax time to see if there’s anything left over, but it doesn’t have to be that way. With the Profit First system, you can transform your financial habits and start taking a profit check every quarter.
Using a simple spreadsheet or even the back of a napkin, we’ll guide you through assessing your financial health. From calculating real revenue to understanding where your money is going, this episode will empower you to make changes that lead to consistent profitability.
What You’ll Learn:
- How to calculate your real revenue and why it’s the foundation of Profit First.
- The difference between gross profit and real revenue—and why it matters.
- How to allocate income into Profit, Pay, Taxes, and Operating Expenses.
- Why most businesses miss their profit targets and how to realign your finances over time.
- Actionable steps to start building wealth with small, consistent changes.
Highlights:
- Getting to Real Revenue:
- Learn how to calculate real revenue by subtracting costs like materials and contractor fees from your total sales.
- Understand why real revenue—not gross profit—sets the stage for all other financial allocations.
- Breaking Down Your Numbers:
- Profit: The reward for running your business—take it first.
- Owner’s Compensation: Your pay for the work you do in the business.
- Taxes: Income and business taxes set aside to avoid surprises.
- Operating Expenses: What’s left to run your business effectively.
- Understanding Target Percentages:
- Use the provided spreadsheet to calculate where you stand versus ideal benchmarks.
- Recognize that most businesses don’t hit targets right away, and it’s okay to improve incrementally over years.
- Overcoming Financial Challenges:
- If your business isn’t profitable, it’s time to reevaluate spending and pricing strategies.
- New businesses can reverse-engineer profitability to ensure their model works from day one.
- Start Small for Big Impact:
- Open a profit account and start by allocating just 1% of your real revenue.
- Build momentum over time—small changes compound into wealth.
Action Step:
Download the Profit Assessment spreadsheet here, gather your tax return and profit & loss statements, and calculate your real revenue. Then, create a profit account and start setting aside 1% of real revenue every time you pay bills.
Final Thought:
If you can’t afford to set aside $10 out of every $1,000 in revenue, it’s time to reevaluate your business model. This small habit is the foundation of building wealth and creating a sustainable, profitable business.
Link to excel file: Excel file from dropbox
Hi, I’m the Profit Answer Man Rocky Lalvani! I help small business owners simplify their financial reports to make more informed business decisions with fewer hassles. We utilize the Profit First system created by Mike Michalowicz
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Relay Bank (affiliate link) – https://relayfi.com/?referralcode=profitcomesfirst
Profit Answer Man Facebook group: https://www.facebook.com/groups/profitanswerman/
My podcast about living a richer more meaningful life: http://richersoul.com/
Music provided by Junan from Junan Podcast
Any financial advice is for educational purposes only and you should consult with an expert for your specific needs.
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