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Do you ever wonder how to measure business success? For me, the top indicator is if your business is profitability. Having money in the bank is a way to ensure that your business finances are stable. This stability will help your business keep going long term because you are able to react if anything unexpected happens.

In this post we’ll look at why high revenue doesn’t necessarily mean that you will be profitable. I’ll also share a very inexpensive tool to help you ensure that your business always remains profitable.

High revenue doesn’t mean high profit

We’ve all seen the countless claims by people who make six figures. I have to admit that these claims make me a little loopy. Generally people are very happy to shout about how much income they have generated. They are not so keen to share how much money they had to spend to make those six figures. There are exceptions to this rule but a lot of online claims just share the positives and skip the negative parts.

If you made 100K but spent 90k on ads and tools to get you there, that’s not such a great story to shout about is it?

You can be profitable with a small revenue

If you are smart with your money, even if you earn a much lower revenue than 100k you can ensure your business is profitable. If you allocate every penny (or cent) that you earn to a purpose and stick to your plan, you will have a profitable business almost from the start.

Money management is key

Managing the money you earn is key to your business success. When money comes in, allocate some to pay your taxes, some to pay yourself, some as profit (this is to ensure your business stays profitable) and only reinvest what is left back into your business. This will force you to look at your business expenses regularly and only pay for the items you absolutely need to keep your business running.

This is very much the opposite way of thinking to the business coaches that recommend investing a fortune in yourself upfront. This is about really thinking about what you spend your money on and if you need to spend that money. With this method you could bring in a tiny income and still be able to pay yourself, your taxes and make a profit.

Further Tools

I have created a profit calculator to help you allocate any revenue that you bring into your business. You simply enter in your revenue and the calculator will allocate that money between pay for you, tax, profit and will tell you what is left to invest in your business. You can change the rates for tax, pay and profit to suit your needs. Find out more about the profit calculator here.

I created the profit calculator so you can get a big picture view of your financials, following the guidelines set by the book Profit 1st (by Mike Michalowicz). My calculator is in no way affiliated to the book. If you would like to read the book you can find it here.

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