Hi. If you are a business owner and you hesitate to calculate your profits on a monthly basis or quarterly basis or yearly basis chances are that you are afraid of accounts, don’t understand accounts, or don’t know how to check your profits quickly. In this video I will teach you how to calculate profits easily even if you do not have accounts background. If you know the basics of how to calculate profit in your business you can skip this video.
All we need is some data points to calculate. It can be done in a step-by-step manner.
Refer Excel
1. What is the sales per month. Take the value before taxes
2. What is the cost of goods sold in a month? To calculate this easily take the opening inventory value at the beginning of the month – closing inventory of the month and add the total purchase made in a month. With this you will know the COGS
3. Calculate the gross profit which is sales – cogs
4. Write down the expenses made in a month. Usually list out the salary, rent, eb, maintenance, stationary and other miscellaneous exp
5. Now calculate the Operating profit
6. Next calculate the Interest on investment. Multiply the interest charges which you pay to the bank or your investors or to yourself for the capital between 12% - 24%. But the investment can be of 2 types
7. 2 types are what the investment on the stock and business. To calculate paid up stock is done by taking the closing stock value of the month less the payment outstanding to your suppliers/vendors and advance payment made to your suppliers/vendors. With this arrival of paid-up stock value just multiply the interest amount and divide it by 12 so that you know the interest per month.
8. Depreciation can be calculated by taking your overall capital investment for which the value reduces every year and it has to be treated as expense and need to remove them from system. Like the interiors or machinery, you have purchase. Usually, the thumb rule is to take 25% of the value and reduce the value of this capital investment to zero in 4 years. So your capital investment x 25% / 12 months to arrive at monthly value.
9. Finally, what you get is net profit. This is done by taking the operating margin – interest - depreciation.
10. So, like this keep doing this every month and you will know how much you made and any course correction is required.
Remember one thing. fortune lies in the numbers. Tracking the numbers and analysing it and taking corrective measures to improve it with a strategy. Else you might end up wondering you work hard, do good sales, make good margin but end up not knowing how much profit you made or why you dint make money. Assuming gross or operating profit as you net profit.
So start tracking And analysing yourself. Don’t keep assistant to do it. Do it yourself.