Many small and medium-sized businesses are unaware of how their company’s net profit is calculated. It is very important to know what the net profit of your company is since this way you can better project what the growth of your business will be like, you know the finances in more detail and create better budgets. Knowing your finances better helps you obtain capital or loans when expanding your business.
The first step to know what your net profits are is to analyze your company’s sales and then subtract the costs of the product or service; this calculation gives you the gross margin. From this number, the gross margin, you will subtract all direct and indirect expenses. This result will give you your net profits.
On many occasions, business owners think that if you subtract the costs of the product or service from the sale, you already have the net profits. That calculation is incomplete, because there are other direct and indirect expenses in your business as well. When making this calculation, you must include your direct and indirect expenses costs such as electricity, water, telephone, insurance, rent or mortgage and professional services, among others. In our previous content we explained all the elements that should be part of your budget and this will help you properly calculate your net profit.
Knowing your net profits and having a well-designed budget can serve as a guide to know how to achieve your goals and make your growth plan. Here we list the main factors to analyze your financial situation and develop the business plan to grow your company:
- Identify your competitive advantages.
- Calculate what your net profits have been for the last three (3) to five (5) years.
- Identify areas of opportunity in your business.
- Analyze your customer base and whether it has increased or decreased in recent years.
- Create a realistic budget.
- Make a projection of where you want to take your business in 3 to 5 years.
The success and continuity of your business depends on working with an effective business plan and budget. If you do not have the skills and knowledge to manage your business finances, it is important to create the right team to manage your finances. It is recommended that in your business you have some type of financial advice such as that of an accountant or another type of financial advisor. There are many professionals and entrepreneurs who are very good at what they do, however, they are not good managers. Make sure you hire someone who can advise you and help you manage your business effectively so that you can achieve your growth goals.
If you want to apply for any type of financing for your business or need help or guidance with any financial aspect, remember that at Oriental we are more than ready to serve you. Visit orientalbank.com.
