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Are you running a profitable business? The trick is this: there are many kinds of profit, but only net profit equals income. For instance, a roma tomato is the same size as a kiwi fruit, but not all kinds of fruit.
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Surely, a watermelon dwarfs a roma tomato. Net Sales refers to sales of products and services — not income from the sale of investments and assets. Also, be sure to subtract discounts and allowances from this figure. For example, you may need to haggle with vendors and shop around to get the best prices on your raw products.
In your organic cat toothpaste business, this would mean getting the best deals possible on vegetables and meats from your local farmers and sourcing your coconut oil a firming agent in your toothpaste in bulk quantities to lower your resource costs. Take a look at the discounts and other marketing enticements you offer new customers. Do they match your anticipated growth figures?
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Are you spending too much? Too little? Are you offering discounts simply to shed excess inventory? Your lender will compare your Operating Profit Margin to the size of your business to determine your stability.
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You probably want a high margin for your niche business. For example, if you sell very few cat toothpaste tubes at boutique prices, you can survive on a lower volume of sales. Only large, big-box retailers with massive sales volume can remain profitable on slim margins. Investors, vendors, and other stakeholders need this information to get a clear picture of your operational health. That being said, most businesspeople understand startup businesses need time to reach profitability.
An investor in your cat toothpaste company may well understand that you plan to lose money attracting customers in the first 2 years and make your profits in years This person might well take your customer base figures more to heart than your bottom line. Jump To Section What is revenue? Revenue equals gross income, but not net income.