It is natural to feel confused when faced with a document full of figures and calculations. However, in business, everything revolves around numbers whether you like it or not: profit and loss, payroll, tax, National Insurance and general cash flow management and no matter how nervous you are in this area, if you are to get ahead in business, you need to take control.
Anyone who has seen Dragon’s Den knows that even the best entrepreneurs struggle on questions relating to finance and business figures: profit, turnover, gross profit and the like. Understanding these terms is vital so here are a few tips.
Turnover and Profit: What’s the Difference?
Your company turnover is the value of all your sales before costs are deducted. Profit is what you are left with after all costs are taken away. So for example if you sell £100,000 of goods in a year, your turnover is £100,000. But if you spent £50,000 on supplies, then your profit is £50,000. Remember the difference.
Gross Profit and Net Profit: A Further Complication
Do you know the difference between net and gross profit? Make sure you do otherwise your accounts may make interesting reading at the end of the tax year. In simple terms, gross profit is the total amount of money that your business makes before any deductions are made. You simply have to calculate everything that has been sold or returned a profit over the year and add it all together. To get the net profit, you take the gross profit and take away all your deductions, such as tax, wages, and national insurance. Once everything is deducted, what is left will be your net profit.
Newcomers to business often overlook simple terms such as these and unfortunately it can have a negative effect on their business. It also can make you look unprofessional if you do not know your figures. Local bookkeepers are there to help, so make sure you use them. Whilst hiring the help of a recommended bookkeeper will cost you money, they could save you a lot of worry, and actually save you money in the long run.
Lynn Watson is the Director of Office Assistants, a company that offers small to medium businesses of all types the chance to cherry pick from a flexible range of services including bookkeeping; VAT; Payroll; CIS returns and general office services. The company has 20 years experience and pure expertise in streamlining and making substantial savings for all types of Essex and London businesses from sole traders upwards. For more information visit www.officeassistants.org