Calculate your REAL profit in 5 easy steps (is your practice making enough money?)
What is REAL Profit?
Is your practice making enough money? Did you know that the net profit on your P&L isn’t necessarily your REAL profit? Sure, it keeps your accountant happy and provides the right information to calculate your tax – but that’s boring right? PLUS it doesn’t give you the number that really makes a difference for you as the owner.
REAL profit is the life blood of your practice. A healthy REAL profit margin is so important for the future of your practice and your own well being.
So, how do you figure out what your REAL profit is?
Let’s calculate it –
Step 1 – Make sure your bookkeeping is up to date and accurate. Record your income and expenses correctly. Make sure lease payments and loans are coded correctly. Enter any expenses you have paid for out of personal accounts.
Step 2 – Run your P&L report for a month – identify your net profit figure
Step 3 – Add up any costs that don’t appear on the P&L – things like, regular loan repayments, finance repayments, your drawings
Step 4 – Deduct these ‘other costs’ from your net profit figure
Step 5 – You now have your REAL profit figure. Is it still positive? Great. If it’s negative, this is why cash could be tight for you. Regardless of the net profit on your P&L report, your REAL profit is what matters most.
Example
| Practice A | Practice B | ||
| Income | 175,000 | 175,000 | |
| Expenses | 140,000 | 140,000 | |
| Net Profit (P&L) | 35,000 | 35,000 | ←- Same Net Profit |
| Loan payments | 5,000 | 10,000 | |
| Owners drawings | 10,000 | 20,000 | |
| Equipment finance payment | 1,900 | 5,500 | |
| REAL Profit | 18,100 | (500) | ←– very different REAL profit and Practice B has regular cash flow problems |
If you have a healthy REAL profit you will cruise along each month. If it’s low or negative I know you will be feeling stressed and having trouble keeping up with bills and the ATO.
So if you’re wondering why things feel tight all the time, calculate your REAL profit. If you need help or would like tips and ideas on how to improve your REAL profit CONTACT US today.