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Revenue - Expense = Profit! It is this simple equation
that defines the success or failure of a business. Every business
owner and manager should have this equation written in the palm
of their hand. All too often businesses get caught up in just doing
business and assume that the business will grow and prosper. Many
owners and managers are great at doing what the business does but
are not comfortable with “the numbers.” A good bookkeeping system
is easy to implement, and the information it provides is critical!
Revenue Expense = Profit! Each decision made during the course
of a day should be evaluated based on this equation. For example,
when considering an advertisement in the newspaper, how much new
revenue can be expected? What will it cost to produce that additional
revenue (materials, labor, etc.)? What will it cost to create and
run the advertisement? Can we reasonably expect this decision to
improve profitability?
Certainly there are many other factors to be considered when making
a business decision. Do we have the capacity to increase production?
How will this decision affect employees? Is there any moral issue
involved?
Once
the decision has been made and the plan enacted, the results should
be monitored. Did the decision meet our profit expectations?
Why? Why not?
In pursuit of the
American Dream, more businesses fail than succeed. While profitability
does not insure success, lack of profitability almost certainly insures
failure. Revenue Expense = Profit, Write it Down!
Article
submitted by Paula J. Paisley, Paisley Accounting & Computer
Solutions, Inc., www.paisleysolutions.com.
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