In any business that you are doing, what should matter to you is whether you are making a profit or loss overall.You can know if your business is making a profit or loss with this simple formula.
Selling Price – Cost Price = Profit / Loss.
A positive answer leads to profit and a negative answer gives a loss.The cost price means the amount you purchased the goods while the selling price is the amount you sold the goods
Profit / loss Example
Lets say you brought a cartoon of milk for $5000, and you sold it for $5250, then; Cost price = $5000,
Selling price= $5250. Selling price – Cost Price = $5250 – $5000 = $250.
So you have made a profit of $250.If however, the cost price was $5000, and the selling price was $4750 then you have made a loss of $250.i.e $4750 – $5000 = -$250
Net Profit / Loss.
It is not always possible to make profit on each and every good sold. A business will survive if total profits made are significantly greater than total losses made. So,
Total profits – Total losses = Net Profit / Loss.
If the answer from the above formula gives a positive value, then you have made a profit overall, otherwise, you have made a loss overall.It’s a good sign if your business experiences regular cash flow, but is this cash flow leading to an overall profit, or loss within a specified period? Always be ready to do the maths as these will determine if the business will survive and grow or if it will struggle and then die.
Capital & operational cost.
This is the cost of setting up your business. For instance if you were going to set up a shoe selling business, then your capital cost may include the cost of setting up the shoe shop and the cost of purchasing the shoes at wholesale prices.
Refers to day to day cost of running your business. i.e. transportation, fuel, electricity, internet, feeding etc. Over time if you are making significant profit from your business, you should be able to not only pay off daily operational cost, but also the capital cost within the specified period.
It’s always a good idea to do some feasibility studies before embarking on a business journey. Things you should consider include:
The location you intend to put your business,
Capital and operational costs
Your own skills and abilities.
Risks involved etc.
Example: let’s say you what to expand your existing business to a new location, to rent a shop for the business will cost $5000 monthly, and feasibility studies have shown that you can make up to $200 profit daily, should you go ahead ?
Doing the maths you will see that in a month you should make around $200 x 30 = $6000, This means a net profit of around $1000 monthly ($6000 – $5000). This is worth trying out since there is always room for improvement.
Tips for being successful in business
Be disciplined in keeping record of all cash flow relating to the business, and do the profit/loss maths.
Don’t over borrow to finance your business.
Always be nice to all categories of your customers at all times.
Advertise your business.
Pay your tax regularly.
Properly register your business with the relevant agencies ( if necessary) and cooperate with the local people / unions.
Hire only people that will help your business.
Be long-suffering; starting up and growing a business takes time and dedication.
Save/ invest some of your profits.
Put your trust in God.