When running a small business, there are three number you need to know and fully understand.
Financial statements contain a lot of information. They tell a story about how the business is performing and if it has the potential to see long term success.
It's important to dive into all the numbers on your financial statements, but when we look at the big picture, it's important for you to know these 3 numbers.
REVENUE + GROSS PROFIT + NET INCOME (PROFIT)
Revenue: the amount of money your business received income for a period of time
(different than the term sales which refers to the quantity in which you sold)
Gross Profit: the amount of money left when you subtract cost of goods sold (labor & materials) from revenue
This number shows the efficiency of the production of the product or service you sell
Net Income (Profit): the amount of money left when you subtract ALL expenses (cost of goods sold + fixed expenses like rent & marketing) from Revenue
This is how much money your business made over a period of time
You should have absolute clarity over what these numbers look like in your business. It's important to compare these to your past & industry standards to understand what changes you want to make.
>If you realize your gross profit is far below industry standard or that your revenue is decreasing month over month, you can make changes in your business to improve these numbers.
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