Steps to understanding profits

Written By Gary Spirer Published March 29th, 2010

Managing your businesses money is perhaps the most essential piece of the business pie. You don’t have to be the top guy on Wall Street to do it effectively but you do need to know some basics. When it comes down to it, successful businesses are bringing in more money than they are spending, but it can be a tad bit more complicated than that.

Step 1 Know what profit means

Profit is the difference between the income a business makes and all of the expenditures that go out in order to keep the business running. Profit, generally speaking, is calculated over the period of a year. It can also be divided up into quarters. Usually a new business invests a certain amount of money into their concept, product or venture. They are technically “in the negative” when they start. Some companies can stay in the negative for a very long time because it costs money to make money. There unfortunately are no guarantees that a business will ever profit and unfortunately many businesses do fail within the first few years.

Step 2 Understand the uses of profits

In order to have the funds to invest in updated equipment, more staff, and improved training, the business needs to generate a profit. A portion of these funds should be designated for these purposes. There are a lot of different types of profit – from gross to net. Make sure you understand these terms so that you are in the now about exactly how your business is performing and if you are truly profiting.

It’s that simple. Remember, business money management involves understanding where your profits come from and how to invest it. Please visit for more great business advice.


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