The Ignite Spot Blog

How to Make a15% Profit in Business Every Month

Written by Eddy Hood | Jan 22, 2014

 

According to Stephen Covey, you must start with the end in mind if you want to be successful in life. I love this idea. The thought that I could manufacture my future was life changing for me.

This mentality has helped generals win wars, entrepreneurs start and grow businesses and parents enjoy raising kids for 20+ years. It is the driving force of a winner. If you've ever accomplished something worth bragging about, you knew what you wanted before you got started. Granted, the path to get there is never what you envision, but as long as you hold tight to your ideals, you’ll come out the victor.

We've helped many business owners put this practice into daily routine. They come to us for better accounting support. As their bookkeepers and tax accountants, we're tasked with discovering profit. To get a company into a profitable rhythm, you have to start with the end in mind.

We've outlined 8 steps below that will help you generate a profit in business. 

 

Step #1: Calculate your monthly revenue

You would be surprised, but when I ask a lot of business owners what their monthly revenue is, they can’t tell me. There are a lot of umms, head scratching and guessing involved. Take a moment right now and figure out exactly what your business does each month in revenue. If you haven’t launched your company yet, guessing is fine at this point. However, if you've been in business for longer than 30 days, you have no excuse. Talk with your bookkeeper, sales manager or anyone else that can give you exact figures.

Have you figured out your monthly revenues? Good. Lets move on to step #2.

 

Step #2: Begin with the end in mind

Multiply your monthly sales figure by 15%. Let’s pretend that your business generates $60,000 a month in revenue. That would give you a profit of $9,000. This $9,000 is your end goal. It's the BIG BURRITO of accomplishment. Come hell or high water you are going to hit this number.

 

Step #3: Figure out your cost of goods sold

Determine the costs you will incur by selling $60,000 of products or services. Only add up the costs to provide the service or create the product. Keep labor out of it at this point. Materials are a good example of the type of costs you might have here. Let’s assume you incur $11,000 in costs to create your product or provide your service.

 

Step #4: Add up your monthly operating expenses

What are all of the costs you incur to keep your business open? These are the costs you have to pay even if you don’t sell anything. Rent, utilities, marketing, and insurance are all good examples. Let’s assume your operating expenses add up to $9,000 each month.

 

Step #5: Figure out what you can spend on salaries including your own

Labor can be a big drag on any company. Most businesses over hire causing their profits to go down the drain. This step will help you figure out how much you can spend on labor.

  • Start with your monthly sales: $60,000
  • Less your 15% Profit: ($9,000)
  • Less your cost of goods sold: ($11,000)
  • Less your monthly operating expenses: ($9,000)
  • Amount left for salaries including yours: $31,000

After running through the numbers in step #5, you now know that you cannot spend more than $31,000 a month on wages and your pay. This is a vital number to know in your business. If you're going to generate a profit in business, you have got to master your labor costs quickly.

Step #6: Create a Budget in your accounting software

Let’s pretend you’re using QuickBooks. You can now enter your budgets for cost of goods sold, salaries and operating expenses right into the software. Work with your bookkeeper at Ignite Spot Outsourced Accounting to ensure that it's set up correctly.

 

Step #7: Check in with your money daily or weekly

Get into the habit of logging into your accounting software to look at budget to actual reports each day or at least once a week. The trick here is to wait until your bookkeeper has logged the day’s transactions into place. As you check in with your money, you can ensure that you hit your budgets and end the month at a 15% profit. The habit of checking in with your money makes you money conscious which is a great thing. Without this love and care for your bank account, money will slip through your fingers.

 

Step #8: Celebrate

You should give yourself a pat on the back at this point. Most companies run at a loss and eventually go out of business. I firmly believe that if the entrepreneur could master these steps, he or she would turn their companies into money printing machines.

Happy money printing!

 

For more ideas on how to build a profitable business, make sure to read on of our favorite books called Simple Numbers, Straight Talk, Big Profits by Greg CrabTree. It's a great book that will dive deeper into these ideas and we endorse it wholeheartedly.

 

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