profits and costs Archives | Numbers Knowhow

Know Your Numbers & Financial Ratios

Mahmood Reza — Fri, 02 Feb 2024 09:28:52 +0000

Numbers are everywhere, and for the most part, we just ignore them. That is unless we’re forced to pay attention to them when it comes time to do our monthly taxes or budget. But, for most people numbers don’t seem interesting. And this is something I’ve seen over and over again. Know your numbers I can’t emphasise enough how important it is to know your numbers. In your business, your numbers are your best friend. Once you realise that you will become less anxious about them. The enormous benefit your business numbers give you is clarity about how healthy your business is. They will help you in the good and not-so-good times. Because numbers don’t lie to you. They will always give you that reality check. They’ll wake you up from slumber and prompt you to take action. Financial ratios Your numbers can be turned into financial ratios. Consequently, they can tell you a lot about your business’s health and where it could be headed in the future. Here’s a quick guide to how to know your numbers and how to use the most essential financial ratios. Subsequently, you can start using your numbers to make smart decisions for […]

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Gross Profit & Net Profit: What Is The Difference?

Mahmood Reza — Fri, 19 May 2023 09:33:22 +0000

Making as many sales as possible is the goal of every business. Whichever service you offer to your customers, that is going to be what you’re aiming for. However, what really lies behind a successful business story is the profit generated from these sales. In this week’s blog, we will go one step further and look at two types of profit you would typically encounter, gross profit and net profit. What exactly does gross and net profit mean? What’s that all about? Gross profit Gross profit in business terms is the profit made once you deduce the costs the business has incurred for manufacturing the goods and/or providing the services. An easy way to grasp the meaning of it is through examples. For example, Maggie sells homemade biscuits outside her house at 50 pence a biscuit. Now, if she sells a hundred of those, then she ends up with £50. Those £50 are her sales, but it’s not her profit. Maggie needs to spend £10 first for flour, eggs, and sugar. She reckons this will be enough to make a hundred biscuits all in all. This means that she gets a £40 profit. Those £40 are her gross profit. Here […]

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Business Numbers – Friend Or Foe?

Mahmood Reza — Fri, 19 May 2023 09:15:33 +0000

Do you see your business numbers as a friend or foe? If you are in business, what is your attitude towards your numbers? Do you like them, dislike them, or is it somewhere in between? That is what we are going to cover in this blog. If you think that money is an icky subject, your business will remain a hobby instead of further developing and improving. Many business owners are good at what they do. They may have great skill and craftsmanship, they may excel in providing service to the customers, but they are not necessarily aware of the financial impact that affects their business. Numbers are your best friend Have you ever thought about who your best friend in business is? Spoiler alert, it is your business numbers. They are your best friend meaning they will not lie to you, nor let you down. Your numbers help you navigate your business through turbulent times as well as in times of prosperity. Sometimes, a poke in the eye may seem better than dealing with your business numbers. For some people, the flashbacks of Maths classes with Mr Calculate and Miss Take Away are far from being pleasant. Consequently, […]

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How To Judge Your Financial Performance

Mahmood Reza — Tue, 11 Apr 2023 08:59:07 +0000

How do you assess financial performance? It’s not that straightforward, isn’t it? Knowing how to judge your financial performance can be tricky. It’s because many factors come into play. Plus, it’s not always easy to know where you stand. You can get a good idea of how you’re doing if you turn to your numbers – more specifically, your income and expenses. Take a careful look at them, and it should be much clearer where your business is at the given time. In the words of Dietrich Bonhoeffer, “Action springs not from thought, but from a readiness for responsibility.” So, to be able to lead your company to a brighter tomorrow, you need to be informed about the facts, take responsibility for the current situation and plan away based on reasonable data. Care for some tips to get you started? Read on to learn more. Know your income and expenses If you’re running your own business, it’s important to keep on top of your financial performance so you can make sure you’re making a profit. But how do you know if you’re doing well or not? Here are a few tips on how to judge your financial performance. Regardless […]

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What Is Profit In Business?

Mahmood Reza — Thu, 02 Feb 2023 18:51:50 +0000

Profit should be one of your main business goals. Profit is used to build sustainability, monitor, manage, and measure your performance. But what is profit in business, and why is it so important? For most people, profit is the difference between money in and money out. When people say money, they mean notes and coins, what’s in their bank account. That sounds straightforward and sensible, nice and easy to calculate. However, we are talking about the world of numbers and business here! It’s time to burst the bubble. Profit is not measured in terms of money in and money out. When you calculate profit it’s a completely different ball game. Accounting jargon explained Firstly, before we answer what profit in business is, you need get familiar with some accounting jargon. Don’t worry – I have my jargon converter at the ready! Turnover. When your business provides your promise, and your customer becomes responsible for paying for that promise you have turnover. Your promise BTW is the products and services you sell. So, turnover is the financial value of the products and services you have provided to your customer. Revenue is recorded when the sales event occurs, e.g. products delivered […]

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Understanding Operational Gearing

Mahmood Reza — Sun, 02 Oct 2022 16:27:35 +0000

Understanding operational gearing: Operational gearing is a term used to explain an important relationship between the two different types of costs of a business – fixed and variable costs. And because any business needs to have a good grasp of their finances (the money coming in and the money going out) you’re probably guessing by now that you definitely need to know about operational gearing and how it affects your business. So, operational gearing (or also operating leverage) is about the way that a business spends its money. It’s the proportion of fixed costs and variable costs. Companies that have higher fixed than variable costs are highly operationally geared companies. The bigger the discrepancy, the more highly geared the company is. On the other hand, if a company’s costs are predominantly variable, we say that it’s low operationally geared. Why is it necessary to know which type of costs are dominant for your company, you might wonder? Here are two main reasons: 1. Business risk Risk is a big and scary word. But the reality is that every company faces it, and it’s better to be prepared than caught off-guard. It’s an important aspect for business owners […]

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All You Need to Know About Finance Forecasting

Mahmood Reza — Wed, 01 Jun 2022 21:07:32 +0000

A lack of forwarding thinking, having no Finance Forecasting is a problem for businesses. It’s much like turning off the light and trying to find your way around an unfamiliar place in the dark. There is very little in the way of direction. While financial forecasting is not set in stone, it can certainly help. After all, looking ahead can prepare you in many ways. When you run a business, it’s a constant battle. One where you have to overcome challenges and ensure your business is ready. This is where finance forecasting can make a difference. What does Finance Forecasting Mean? A finance forecast will provide you with insight into how your business will look in the future. An example of this is a prediction of how much revenue your business will generate. This kind of information makes it easier for you to make informed decisions and that’s key as a business owner. Additionally, you can use finance forecasting to predict other revenue. This can include fixed costs, capital and variable costs. Furthermore, you can use historical performance data to identify any possible trends. As a result, it will empower you to allocate resources after predicting what might happen […]

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