Computing business profitability

Computing business profitability is important, as the profit of your business affects many vital considerations. For example, the amount of annual profit determines the amount your business must pay in taxes. Opportunities for business growth may depend upon how profitable your business is already, as may the level of financing for which your business qualifies. Many people confuse having good cash flow with being profitable. Just because a business has money coming in sufficient to meet its immediate financial demands doesn’t mean that it’s actually turning a profit.

A business is profitable if it brings in more money than it spends. It sounds simple, but computing business profitability can actually be quite complicated. There are actually two types of profitability, and they must be calculated separately. “Economic profit” is the increase in wealth from an investment, less the costs of the investment. “Accounting profit” is the difference between the retail sales price of the goods (or services) offered and the costs of acquisition of those goods (or in the case of services, the salaries paid to the persons providing the services and the other costs associated with service provision). Computing business profitability as a whole generally will mean computing the accounting profit, while economic profit is generally associated with the profit or loss connected to a particular venture of the business.

As long as your business keeps good accounting records, the actual calculations aren’t that difficult. Compare your current bank balance(s) with those at the beginning of the year – are they higher or lower now than then? Make the same comparison with your accounts payable, accounts receivable, and inventory balances. In general, you want to have lower accounts payable and inventory balances, and higher bank account and accounts receivable balances. If your accounts payable and inventory balances, combined, are higher than your combined bank account and accounts receivable balances, then you’re spending more than you’re bringing in – and not making a profit.


Other related web pages

Business plan template Business plan template and it’s important

Computer basics for business Computer basics for small or home base business

Planning basics for technology for business Planning basics for computer and technology for your business

SCM software What is SCM and it’s important

ACT Software What is ACT software and is it for your business

Microsoft Dynamics GP Microsoft Dynamics GP: An Overview

Small Business CRM Small Business CRM: What You Need to Know

Open source CRM Open Source CRM Solutions

CRM Consulting CRM software-Tailoring the Product to the User’s Needs

Business software tips/review Software tips/review will talk primarily about common software used in businesses.

Windows related webpages

Preventing-PC-errors Ways to preventing-PC-errors and tips to avoid them

Windows Registry 101 Windows Registry 101 - The basics and tips for Windows or Vista Registry

Computer issues continued part 2 This section talks about issues with power supplies

Spyware overview Adware also know as Spyware overview

Malicious code / virus overview Malicious code and virus overview

Preventing PC Errors Preventing PC Errors that can occur in the Windows operating software

Spyware overview Adware also know as Spyware overview

Computing business profitability return to Business computing guide