How much Profit Do I Need Today?
You may ask, Am I Making Enough Profit ? |
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Your not in Business because you love what you do, you also want profit |
This is one of the biggest questions asked by Small Business and Entrepreneurs on a world wide scale. How to know how much income is needed just to cover overheads before profit in my pocket ?
Accounting Software usually only has the ability to tell you after the fact, it is usually a poor estimator of the amount of Income needed to cover expenses in Real Time.
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Where Am I Calculator
With Easyas you have the ability to view how much potential income is required on a daily basis to meet your daily expenses. By using our “Where Am I Calculator”
This means you can estimate how much income you may need to cover your expenses each day or each week before you actually begin to make money for yourself.
This Calculator can operate in almost Real Time. As you enter more information into the accounting system it will use this to calculate your exposure.
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What does this mean in reality:
It means that as overheads increase so does your requirement to need to produce more income to cover these expenses. However what usually occurs is that most Small Businesses do not see the effect of such increases on their bottom line until its almost too late to adjust accordingly.
With the click of a mouse you are able to obtain the minimuim estimate required to stay ahead of your overheads, before making profit.
We all want to know where we are in relation to our expenses, are we making enough.
“Where Am I” – in relation to my overheads and income?
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Business Profit
Believe it or not, generating heaps of money does not necessarily equal profit. If your outgoing expenses are very high, and your income is not meeting this level, then you are not experiencing any profit.
A high number Small Businesses & Contractors loose heaps of money (and some a lot more than that), simply by remaining engaged in activities that do not produce enough profit to cover costs before putting money in their Pocket.
Obtaining a Profit and Loss Report is a great way to view exactly how much profit you have made over a period of time, but this report does not allow you an effective method of being able to look into your daily activities.
This is why we introducted the “Where Am I Calculator” into our software as it has always been the only way to see in almost Real Time where you are on a daily or weekly basis.
Below are a couple of Examples of how this Calculator would be effective
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Example One – How a Cable TV Installer used this Calculator
“This is a Real Case Study – Due to obvious reasons we cannot tell you the names of those involved”
Here in Australia, some of the prime contractors have screwed the Cable Tv industry so much by competing against each other to win these contracts that the price paid for the installations is becoming less and less.. In the end it leaves the subcontractors in the field holding the bag with reduced amounts of income.
We know this because several of our clients are subbies in this industry and this tool highlighted to them how very little at the end of the day was going into their pockets. They have been able to use this tool to illustrate how over the last 6 years the average amount per month in expenses has risen yet the amount of income has decreased.
We know that a simple profit and loss statement can easily tell you where you are. But what this calculator allows you to see is how much you need before you start making money in your pocket. This means if you have to work until lunch time just to pay your overheads, you might think twice about going home early.
One of these cable guys told us that this calculator made him realize that he needed on average $125 per day before he started making a profit. He said that some days he may on receive $190 worth of work, and if any of those jobs fell over, he was losing on average even though he worked all day.
They are given jobs on a set rate, maybe $55 for a service call, $80 to run a point, $210 for a new install.. Out of this they have to pay for all the materials, the cable, connectors, wall plates, everything except the pay tv box itself. So they may be given 1 x $210 job, 2 x $55, and 1 x $80 job for the day… you may say, wow, they get to make $400 for the day…
But then comes the mobile phone, the gas, all the materials (cable, connectors, wall plates), income protection insurance, public liability insurance…. the list goes on… and on …. and on….
Before you know it, when everything is taken into consideration the subby discovers that he needs on average $200 a day before profit. Some days he may only receive $300 worth of work, and that’s got to be painful.
ok, you may say “but the materials are already calculated into the job for these types of contracted positions”. Yes it is true for all types of industries. But as in this case and in may other cases, the price for the materials is usually calculated on the price the big companies are able to attract, and in many cases it does not change even thought the material costs increase 10, 20 or even 30% in subsequent years.
This cable installer was able to tell within a few weeks of using our software that he was going backwards… He had been using his other accounting software for 6 years and really only knew at the end of the year how much profit he made, and simply figured that it all worked its way out in the end.. The profit and loss statements told him that he was making less and less each year, his tax return told him that, and his bank account did too…
But within a few weeks of using our software (He did enter a few extra months of information so he had a fairer range of expenses to work with) he was able to see exactly how much he needed to make every day to make ends meet… He was shocked..
Update: we got an update from him about 3 months later, he has sense left that industry.. He now uses this calculator on a weekly basis and has been able to establish what areas of his new business are the most profitable and which are not…
Obviously he has different expense categories for different areas of work
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But how Does this Calculator Work
Below is a sample view of the calculator screen.. This image does not do it much justice, as you will see when you start using the software. But as you see by the image, it is basic in its design, but unique in its ability to factor in and out almost anything you want.
You can set the calculator to perform calculations over any period you want. You can also instruct it to remove certain expense categories from the calculations.. And all at the click of a mouse…
Read some of the other information below, to get an even broader view of how this fantastic calculator functions. ..
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How many days do you work?
You can also enter in the number of days you work at generating your income. Ok, you may be thinking so what, what’s so good about that ?
Lets say you work 6 days a week and the calculator told you that you need on average $40 per day to cover your costs, before you begin to make a profit (that’s equal to $240 per week)…
But what if your work conditions changed and you suddenly started to work only 5 days per week yet the costs remain about the same. This would have an effect on your daily average, as whilst the costs remain the same you are working less days and have less opportunity to recover costs.
You simply tell the calculator that you are now only working 5 days a week and it will perform the calculations based on those number of days, which in this example would mean you would go from needing $40 per day to needing on average $48 per day before you begin to make a profit.
For me I prefer not to work a Saturday.
But if I must, I figure that it has to be all profit, this gives me incentive to go to work… So I always factor my costs into a 5 day work week, and I always attempt to bring in enough money to cover my costs, and to make the profit I want within the 5 day period. This way when I do work the Saturday (which is about 1 in four) it is cream money for me and my family and usually is never needed to make up overheads.
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Example 2: What if you have expenses that are not overheads- eg. Timber for a New Home
This concept can be used for almost any business and almost any set of circumstances… You can click off the expense categories you do not want included.
As in this example:
We understand that some of the items in the expense categories may not be appropriate to include in these calculations. It would be silly to see a carpenter include $20000 worth of timber which he purchased for an particular job site…
These are obviously job specific amounts, and with our calculator you can choose to exclude certain categories from the calculation. The program will remember the categories you excluded from the list, so next time you go to use the calculator you wont have to go up and down the list unchecking these items.
You can reinclude any item at any time, as you have full control over this calculator.
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Example 3 – What if ALL you materials are quoted into the job, is this calculator useful to me ?
This “Where Am I” Calculator, can be used on a weekly basis, it does not need to be a daily average. In some cases it would be inappropriate for some Small Businesses to perform this calculation over anything less than a week.
This means if it is more appropriate for you to spread your costs over a week as that is how your business operates, all you have to do it select weekly from the list and the calculator will take care of this for you.
Lets say that you are an electrician, and all your material expenses are calculated and quoted for before you take on any new job. It would be of no use to include these expenses in any of these calculations, as they are job specific. But it does not mean this calculator will not be of assistance to you.
As with any business we normally have office expenses, even if its simply postage stamps, a whole bundle of insurances from public liability to vehicle and income protection. There is of course fuel, phone bills and a whole range of expense items that form part of your business overheads.
You can use this calculator to provide you with a weekly average of all these overheads, so you know at what stage of the week you are most likely going to begin making a profit.
This calculator will make mince meat out of your accounts, all at a click of a button.. you will know exactly what you need to make each day or week even before you leave your breakfast table.
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Real Time
Remember that this calculator is always at your finger tips, so within a couple of seconds you are able to see what your current exposure is.
Which means you can receive a mental update at any time you want, and as business overheads inrease or change rapidly you are able to remain current. We believe that this is a close as possible of being able to have a Real Time Business Tool. And is only available with the EasyAs Accounting Software, no other program has this feature.
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Previous Years Activities :
We also find that many of our clients use this to perform month by month calculations… They also take it one step further and perform the same calculations for the same period of the previous financial years.. This enables them to see if there are seasonal trends within their industry, or if their expenses increase or decrease month to month.
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Power at your Finger Tips:
With anything in EasyAs you can take it or leave it. Some will use this calculator every week, others once every blue moon. No matter how often you use our “Where Am I” Calculator, you will find this to be one of the most powerful tools made available to Small Business