40. Cost Analysis
NB: This is a critical step if you want longevity of your business.
You need to work out if your business and products will make a profit. For your business to be sustainable you need to be making money after paying all expenses and taxes. Keep track on your sales and money.
You need to keep updating this as manufacturer and shipping costs are changing continually.
Excel or Google Doc spreadsheet is your friend. There are some excellent Accountancy programs available as well.
Revenue minus Cost of Goods (or Services) = Gross profit
Gross Profit minus Operating Expenses = Operating Profit
Operating Profit minus Tax = Net Profit
Don’t forget your country’s taxes and licencing and other costs (e.g. VAT in the UK).
Plan next year's activities with budgets and KPIs (quantifiable measure of performance): customer satisfaction; process quality; financial performance index
More is written about this in Pricing your Product.
Look at your
Sales and costs forecasts.
Remember you will need money to live and pay your personal bills. Work out a budget for this.
Be realistic and include for seasonal changes which affect most businesses.
Income should include:
The balance will help you determine the health of your business.
These figures are useful for you to determine how many sales you need to make everyday to break even and how many sales you need to make the type of profit you want.