How to measure whether a business is or can be profitable
Posted: Tue Dec 17, 2024 5:27 am
Measuring the profitability of a business is essential to check whether it is viable. It is important to do this calculation before starting a company, with an estimate of the figures that will be in both costs and sales.
And if your business is already up and running, you should repeat this exercise whenever there are price changes to update your profitability data.
Profitability is measured by a simple operation of expenses and income. You just have to take into account each and every one of your business's figures, and correctly place each one where it corresponds.
By subtracting expenses from income you will have the result of your profitability.
Expenses to measure to know if it is a profitable business
-The cost of production of your product or service: components…
–Current expenses: rent, telephone, internet, electricity, water…
–Storage and distribution costs…
–Non-monthly expenses: insurance, licenses, unforeseen events…
–Taxes: VAT, Personal Income Tax, Corporate Tax…
–Salaries, including their social security. Don’t forget yours.
–Credits, leasings…
Product cost: important
You must put all these expenses into perspective to insurance email list calculate how much of them corresponds to each unit of product, and thus know how much each one costs you.
To do this, you will divide the costs that do not directly correspond to production by days. Then, calculate how many units you can produce per day and you will know that each unit costs you the sum of:
-The cost of production.
-Expenses per day divided by the number of units per day.
At this point, it is important to remember that your daily production capacity must be adapted to your sales capacity to avoid stock build-up.
Similarly, when demand exceeds supply, you will have to consider increasing production with more employees and other added costs if, for example, you have to move to larger premises.
And if your business is already up and running, you should repeat this exercise whenever there are price changes to update your profitability data.
Profitability is measured by a simple operation of expenses and income. You just have to take into account each and every one of your business's figures, and correctly place each one where it corresponds.
By subtracting expenses from income you will have the result of your profitability.
Expenses to measure to know if it is a profitable business
-The cost of production of your product or service: components…
–Current expenses: rent, telephone, internet, electricity, water…
–Storage and distribution costs…
–Non-monthly expenses: insurance, licenses, unforeseen events…
–Taxes: VAT, Personal Income Tax, Corporate Tax…
–Salaries, including their social security. Don’t forget yours.
–Credits, leasings…
Product cost: important
You must put all these expenses into perspective to insurance email list calculate how much of them corresponds to each unit of product, and thus know how much each one costs you.
To do this, you will divide the costs that do not directly correspond to production by days. Then, calculate how many units you can produce per day and you will know that each unit costs you the sum of:
-The cost of production.
-Expenses per day divided by the number of units per day.
At this point, it is important to remember that your daily production capacity must be adapted to your sales capacity to avoid stock build-up.
Similarly, when demand exceeds supply, you will have to consider increasing production with more employees and other added costs if, for example, you have to move to larger premises.