Article Figuring Your Dollars and Sense

Have you ever had some-one ask, “So, how much money are you making?”  While this might be a rude question, it is a question you should be asking yourself.  While it’s nice to think about all the money you take in, you need to know your actual operating income and expenses to accurately gauge how you’re doing.  Only then can you plan your expansion, add employees, or just plan your next big vacation!

There is a fairly simple formula for computing your operating income, but it does involve some time with a calculator and a pencil.  First, take your Gross Revenue—the amount of cash actually collected from your machines. Then deduct the Product Cost of those products sold (not the wholesale cost of all your products).  This figure is your Gross Profit.

At this point you need to calculate all of your Operating Expenses.  This will probably be the hardest part to calculate at first; usually new businesspeople aren’t sure exactly what should be considered operating expenses.  Check with the Small Business Administration or your local tax bureau for free instructional booklets that define what are proper expenses. These include applicable sales taxes, commissions to locations (if any), vehicle expenses, insurance, bookkeeping and route supplies, and any other expenses you can think of that occur during the course of your business.

You also must calculate your General & Administrative Expenses, which includes any depreciation/amortization, marketing expenses, rent, interest payments, etc. that you might have.

Now, deduct the Operating Expenses and the General & Administrative Expenses from the Gross Profit, and the resulting figure is your Operating Income. Don’t forget to consider small business tax advantages!  Then you can determine if you should add more machines, or whether it’s time to add an employee to help expand the business or free up some of your time.

Oddly enough, one value that most people forget to calculate is their own personal time—how long it takes to operate the business.  How much is your time worth?  People often forget that their time is valuable and should be taken into account before adding an employee or considering further expansion, since more machines and more locations will require more of your time.  Obviously, it’s important to you, since it’s probably one of the reasons you became a distributor!