Learn to Manage Your Company
Your expenses, not your gross revenues, should dictate how high your sales revenues should be. Creating, analyzing and comparing a cash flow forecast can help you do this best. By analyzing where your cash is going each month, you can set sales goals or find ways to cut expenses so you do indeed have a positive net profit and not a net profit loss.
Gross profits vs. net profits are not the same, however, you can also use sales forecasting along with expense tracking to also determine how to keep expenses low so your gross profits are large enough to handle monthly expenses.
A large mistake made by all new business owners, including myself, is that you have your line of credit, capital funding, or working capital. You spend it—actually overspend it, and before you know it, your sales revenues are not high enough to meet expenses, you have a net profit loss and you are scrambling for money to put into the business. Keep in mind that no investor will invest in a failing business.
Learning to manage your cash based on sales revenues and expenses is essential in running any business effectively. Sure when you open the doors you want that new (and expensive) display, office equipment or the latest technology. Often, it’s best to get some months of revenues and expenses under your belt before you make rash decisions on expenditures for things that yes, you want, but are they really necessary?
SCORE, a division of the Small Business Association offers courses and mentors that can help the new business owner better understand gross profits vs. net profits and teach them not only cash management, but business management.
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