The first metric you should be looking at when you review your monthly Profit & Loss Statements is “percentage of income.” This is the one to keep your eye on.  So powerful.

What is “% of income?” It’s the percentage of each category of cost and expense as measured against the gross income.

This one metric can help you analyze past performance:

1. current period against itself
2. current period against prior periods
3. current period against budget.
4. individual products and service profitability

It can also help you construct future strategy:

5. budget
6. pricing structure
7. investment needs

In this article, I’ll talk about #1 and #2.

How to calculate it:

The income referred to here is Gross Income, the amount that you receive from your clients and customers for your services and products. (Also referred to as Gross Revenues and Gross Sales, same thing.)

Think of your Gross Income as the 100%. Every other cost and expense on the P&L is divided into the gross income to come up with a percentage, hence the name, percentage of income.

For example, this here below is the P&L for a consulting company.

	Jan – Dec 2015
	Current	% of Income
Income
INCOME	55,109	100%
Expenses
1 – SALES EXPENSES	3,204	6%
2 – MARKETING EXPENSES	2,808	5%
3 – T&E EXPENSES	5,934	11%
4 – G&A EXPENSES	9,553	17%
5 – CONTINUING EDUCATION	18,090	33%
6 – WEBSITE EXPENSES	119	0%
Total Expenses	39,707	72%
Net Operating Income	15,401	28%

I like to start by looking at the big picture first, then drilling down to the details.  Start with the bottom line, at the “net profit %.”  That’s another name for “Net Operating Income %.” Here it’s 28%. That means that for every dollar brought into the business in revenue the business made $0.28 in profit.

Next, I look at the different types of expenses and see what % of income those were.

Now, information about one accounting cycle is informative, but the beauty of this metric is fully revealed when you use these percentages in comparison to other periods.

	Jan – Dec 2015		Jan – Dec 2016
	Current	% of Income	Current	% of Income
Income
INCOME	55,109	100%	49,696	100%
Expenses
1 – SALES EXPENSES	3,204	6%	15,365	31%
2 – MARKETING EXPENSES	2,808	5%	3,000	6%
3 – T&E EXPENSES	5,934	11%	752	2%
4 – G&A EXPENSES	9,553	17%	6,756	14%
5 – CONTINUING EDUCATION	18,090	33%	2,284	5%
6 – WEBSITE EXPENSES	119	0%	369	1%
Total Expenses	39,707	72%	28,527	57%
Net Operating Income	15,401	28%	21,169	43%

Now the fun starts.  All kinds of questions come up and the answers will inform you on two fronts: by tracking your actuals to see how you actually performed and by giving you information you can use to make changes to set and hit your future targets.

Income was down in 2016, but net profit was up. What? Why was that? Continuing Education, for coaching, were way down in 2016. That explains it.

My next question for the owner to answer would be: Sales were down 10% in 2016 over 2015. Did the lack of coaching have anything to do with that? Had you continued with the coaching do you think you would have increased your sales? Or did that make no difference? The answer to this question will then open up new avenues of questions.

If they think that lack of coaching negatively impacted their sales, what would their sales numbers need to be in 2017 to both get coaching and maintain a 43% net profit margin? $77,231 is what. So now they have a target number for your income budget should you want to continue coaching in 2017.

This is how using this one metric, the % of Income, can both help you analyze your past performance AND help you set your future budgets and targets.

We’ve only scratched the surface of the questions and analysis possible with this one metric. There’s plenty more to come, such as comparing “budget to actuals” and constructing a pricing structure for products and services.

Shoot me any questions and comments and I’ll be happy to address what’s up for you.

Happy number crunching!

 

 

 

 

 

 

The term, getting to scale, means that your business is on its way to becoming financially stable.  On its way, not there yet.  And how do you know you are on your way?

1.  Your business model is profitable.

2.  You have your goals clearly identified.

3.  You track your performance against your goals and adjust accordingly.

It’s really that simple.  Easy to execute? No.  Simple?  Yes.

Once you get to scale and have reached a financially stable size, you can stay there if you want.

If, on the other hand, you want to compete with bigger businesses, make a whole lot more money, and/or make an impact, then you want to scale up.

But first you have to get to scale.

Every business, from the solopreneur who does everything herself to the seasoned CEO with 10 employees relies on the same Generally Accepted Accounting Principles (GAAP), on the same tax codes, and on the same financial strategy challenges.

And whether your business generates $100,000 in top-line revenue or $1MM, sound strategy and implementation are the keys to success.

Understanding the financial management piece of running your company is crucial.

If you’re in business at all, it’s because you are good at what you do.  But you may not know the nuts and bolts of financial management.  Not to worry…it’s all learnable.

So tell me, what are your current frustrations and challenges on your road to getting to scale?   Hit me up here and let’s get your questions answered.

To your financial success.

 

Best,

Monique

They are all containers.

They are physical things that support you in making change (which is what you are doing right now by learning new concepts about your financial operations.)

Swaddling babies calms down their nervous system and gives them a sense of security.

Dog parks give dogs a sense of security because they know the boundaries of their territory.

Timers gives you a start and a stop time so you have a sense of completion. Most projects take longer than 25 or 45 minutes to complete. But by chunking a large project down into smaller, doable steps you get a sense of containment, of managabity. That something is do-able.

This week I want to share with you some resources that will contain the energy of “overwhelm” and turn it into “on purpose.”

Sometimes I go a little overboard – creating a more complicated routine than necessary.

Here are 3 resources for you to help you move forward! Use them, love them, share them and let me know how you like them!

Whitney Bishop: Make 3 Changes – change doesn’t have to be “all or nothing,” in fact, making small, steady, consistent changes over time may just be the ticket.

The Pomodoro Technique – a time blocking technique that I have adapted with GREAT success! LOVE this. Hope you do, too! This one thing alone has made a hugh difference in my life.

Amy Cuddy – Power Poses – Amy’s TED talk about how adopting a pose for 2 minutes can change your physiology is just stunning! Such a simple, quick thing has powerful results. I’m a fan ’cause it works.

If I can be of service or if you want to take me up on my offer to support you, LET ME KNOW! I love serving those who serve others. Just grab a spot on my calendar and let’s make it happen!