Do You Know where Your Profits Are?
Well? Do you?
Who remembers that PSA on TV from back before even VHS tape, when the announcer would come on the tube and say, “It’s 9 p.m., do you know where your children are?
That’s the spirit behind my question of the week, here.
Your gross revenues have been out joyriding around, in that naughty friend of your kid’s souped-up street machine.
Are they burning through the expenses, necessary and lean or fat and sassy, like so many burgers and malteds at the carhop diner?
You see, I started out thinking about the accounting cycle.
Do you know what they mean when they say that?
It’s kind of a college term in accounting class for a calendar month.
Profit & loss, and statements of cash flow go month-by-month because that just makes the most sense.
Every month is a little micro-season, and for so many businesses some months are expected to be huge…
…while others, maybe, not so much.
Trial balances and books closings even occur on a monthly basis for many larger manufacturing concerns.
Maybe not so much for my favorite people, the small business entrepreneurs.
My business and taxes winners!
By the way, by small business I’m talking under $10 million.
Just so you know.
Anyhow, so the accounting cycle was on my mind because, hey!
One just ended yesterday. The week AND the month begin today, folks!
You’re out there with your glass-pack mufflers in your fuel-injected money machine.
Making the dough. Bringin’ in the cheddar.
Do you know where your profits are?
Want me to tell you?
In simple terms, the money you’re depositing into your business checking and/or savings accounts…
…less cost of goods sold (job and materials as well as labor, both wage and contract)…
…less the ordinary and necessary expenses of your business…
…THOSE are your profits, specifically what we call Net Profit.
Now, here’s where it gets fun. Like being a hot-rodding juvenile delinquent.
What if you just KNOW that you have money coming in, money going out, and you can withdraw enough to pay bills and eat on, but that’s where it ends?
Imagine running a fitness program like a TV-watching couch potato.
No thought for what you’re packing into your face-hole, or how low your metabolism is.
Until you can’t see your feet when you shower.
Or running that noisy-loud rolling iron down the deserted airport road at night with no thought to the fuel gauge.
Until it’s too late.
It’s 9 p.m. – do you know where YOUR profits are?
Take heart, dear fellow traveler.
You are not alone.
If I could tell you the multiple number of times, I got a bunch of numbers hand-written on a couple of pieces of spiral notebook paper, and was asked to turn them into a tax filing?
Like the shortest verse in the Bible goes, “Jesus wept.”
I’ve been doing this long enough to know that this paucity of information is coming from a place of pure hallelujah.
Sophisticated Wild-Ass Guesswork, aka SWAG.
I always find myself wondering, and am wondering now as I write down these things that I think…
How in the heck does one function, and even get a decent night’s sleep, not knowing how they’re really doing in their business?
Have you ever watched one of those terrible reality shows about hoarders, and wonder how they find that one thing they know they own but haven’t seen in months?
I feel like it has to be similar to that hopeless condition of the mind.
A sphincter-tightening, terrifying, eye-bulging lack of control.
Let me tell you some reasons why you really DO want to know exactly how you’re profiting, each month, shortly after the month ends…
One: SWOT analysis. That stands for strengths-weaknesses-opportunities-threats. I personally focus on the first 3, but have to admit that everything isn’t always peachy.
A threat can be something as simple as having that one worker that you just know is costing you money, maybe not on purpose or design, but just because they’re not the perfect fit for the position.
Two: Scalability. Don’t you want to KNOW if you’re improving, hanging steady, or declining?
Good lord, I do!
How do you plan and grow if you don’t even have a clue how you’re doing?
You could be, in the immortal words of Jackson Browne, “runnin’ on empty.”
Blissfully unaware until you’re ankling it down the highway with your empty gas can in hand.
Three, and this one is huge: taxes.
Come, sit beside Eric…let me talk to you as friends do.
If you think about taxes as a necessary evil, to be put off until March or April of the following year because you know you have to…
YOU’RE DOING IT WRONG!!!
You are going to be great in business, possibly because you’re some kind of savant.
Or because you just have the King Midas touch, turning your world into gold with every turn.
But you are NEVER going to be truly successful until you awaken yourself to the idea that in this country…
…and pretty much every other industrialized nation…
Taxes are an ordinary and necessary expense of your business, too.
If you think you’re going to owe $10,000 in taxes next April you’d better be planning to pay $2,500 each Estimated Tax deadline this year.
Two reasons: one is underpayment penalties, but the other is what we accountants call the Matching Principle.
Put in laymen’s terms, this is incurring and accounting for an expense in the same month (accounting cycle) that you earned the money it was an expense against.
Doing this is, for me, as natural as keeping my nightstand straightened up so I can find my damned reading glasses.
Knowing where your profits are, EVERY MONTH.
Knowing exactly how your business is doing at any point during the year, without losing your mind digging for information that should have been organized all along?
That, my friends, is the key to business happiness, in my little ole OCD heart.
Would you like to have this level of confidence, AND even save thousands of dollars on unnecessary excess self-employment taxes every year?
Enough to pay for a year-round accountant, in fact, with money left over?
We should talk!
Comment, email, or click this link!