Gross Profit or Net Profit

In the business world it is important to know the difference between gross profit and net profit. If you are selling products or services, which is most small businesses, you really want to understand how your gross profit and net profit affect your bottom line. Your gross profit is the amount of money you have left after all your expenses relating directly to your product, or your Cost Of Goods Sold (COGS). This is determined by what costs you have that are directly related to your product, for example; if you are producing a product, any cost in manufacturing the product would be a COGS, any specific advertising for that particular product is a COGS. Again Cost of Goods Sold refers to the costs that are directly related to your product. On the other hand you have expenses or as they are also called Overhead. Your overhead expenses are fixed expenses that occur periodically whether you are selling a product or selling ten different products, for instance, your Internet bill is an overhead expense, or your business phone is an overhead expense, or any other office expense incurred. So your gross profit is the amount of money you have left after you factor in all your COGS. Then you deduct your fixed expenses or Overhead expenses from that balance, this is your net profit. SO why is it important to know what your gross and net profit are. Think of it this way, if you have a product that generates a gross profit of 40% and another product that produces a 10% gross profit, which product do you want to sell more of? Exactly, this is why you need to know how to calculate what your gross profit is so you can determine what product or service you want to focus your marketing efforts on. Products that have a lower gross profit are not necessarily all bad, they can help generate some income, but you need to generate the appropriate amount of gross profit to cover your overhead expenses. Your overhead can be calculated based on your COGS. This is important so you know what your gross profit margin or percentage needs to be. If you have an overhead expense of 25% of what your gross COGS is and your gross profit on a particular product is 10% you may want to rethink that product. Now you can see why it is important to understand the difference between the two types of profits. This may seem somewhat technical but it is very important to understand this concept to ensure the profitability of your business.

The Hard Decisions

In today's struggling economy we are faced with some difficult decisions. Some of us may be looking at ways to cut back on expenses, some may be looking at ways to invest money more wisely, and some might even be trying to figure out where that next paycheck is coming from. For small business owners, many are trying to figure out how to just survive. But what we, as small business owners should be looking into is how we can benefit our company during these down times. How to strengthen our businesses and turn a bad economy into an opportunity to grow in other directions, to become more diversified. This will require some difficult decisions though. You may have to explore areas that you know little or nothing about. You may have to spend a little money to find ways to create a path to opportunities in the business world. You may have to become educated in areas that maybe out of your comfort zone. You know that comfort zone where you know the answers to all the questions about your particular niche that your small business is centered around. The intimidating thing is that it is unknown territory, untraveled ground. The good news is this unexplored terrain may hold the future to your prosperous small business success. In addition there are now multiple resources that will enable you to find answers to theses unknown questions of what to do and how to go about this change. Now is the time to make those decisions and take control of this economy instead of letting it control you.

Start Here

If you are just starting to set up a new small business or home based business, one common question comes to mind, What do I do to get started? There are many ways to go about starting your new small business, one important thing to remember is what do you want your business to accomplish and what do you want your new small business to be in five or ten years? By starting with the end result in mind you will give yourself a clearer vision of the path you will need to travel down to reach your goals. By looking forward you give yourself a better probability of success. Statistics show that 80% of all new businesses fail in the first 5 years and that 80% of those remaining fail in the next 5 years which comes out to about 96% of all businesses failing within the first 10 years. This statistic is why your first steps in creating your new small business is so critical. And that you get started down the right path that will lead to your success and prosperity. Many people fail to see the significance of having a clear vision of where you are heading with your small business. This philosophy also holds true for making changes in your personal life and allows you the best chance for prosperity in all aspects of your life.