August 12, 2013

Is Your Business Profitable?

To enter the 10,000 Small Business's Team competition, sponsored by the Tory Burch Foundation and Goldman Sachs, Wink and Flip had to create a profit and loss statement for 2012 and 2013 Year-to-Date. A profit and loss statement is a real eye opener.

The IRS is concerned with whether or not what you do in your free time is a hobby. A hobby is "an activity done regularly in one's leisure time for pleasure: her hobbies are reading and gardening," according to Webster.

If your efforts are not a hobby, perhaps they are a business, defined as: the practice of making one's living by engaging in commerce: the world of business | whom do you do business with in Manila? | the jewelry business | [ as modifier ] : the business community.

I never know when someone speaks of how they did at a market, if their effort is really a hobby, or a business. They may say they did "pretty well," or "decent," in terms of what kind of money they made. What does that mean, exactly? While no one has the obligation to share with others the amount of their revenue, I am always left wondering: Was there a profit? 

Profit is defined as "a financial gain, esp. the difference between the amount earned and the amount spent in buying, operating, or producing something."

So, although it may be painful to figure out, a profit is not whether it was a fun day out with friends stopping by, a day that passed faster than other days, or a day where the music was thumping, the customers were amusing, and the food was delicious (although that can be a great day!) Some people may find this article very harsh. Yet, the reality is did you pack up less stuff than you brought? Is the wallet/envelope/box you trucked to the site fatter than it was at 8 am? The day had either 1) no profit, 2) a small profit, 3) a good profit, 4) a great profit, or a 5) "Lordy Be, now I can retire" profit. 

If you have to choose option #1, it is not necessarily you that is the problem. But it is you who has to get to the bottom of the problem. It may be that your customer was not present at that market. Or the rent was too high. Or you are not charging enough for your product to make a profit. Or there were customers there and somehow they did not become engaged in your story and the thing you have to sell. 

If you have figured the per unit cost of your widget (the name of a product whose name is unknown or unspecified), the rent for the space, the cost of getting to and from the market, your time sitting at the market, and anything else on which you spent money to be there to do business, and you deduct that from the cash and credit you took in that day, then you have the true profit for the day.

It is not our philosophy at Wink and Flip to live or die by a single day. Instead, we like to look at the whole season. If you hit a bad day (and everyone does), and you are looking at the whole season, it is less likely someone is going to have to talk you in off the ledge of your apartment building. 

On Wall Street, companies report four times a year, once each quarter. If they don't make the quarter the stock goes down, but savvy investors look at how the company did over the entire year. I believe in looking at the season, but tweaking on a week-by-week basis. It is never too early to try to make improvements in your business, and never too late to look for growth year over year. If your profits are not what you would like them to be, do a top to bottom review of your business. What can be improved? Ask someone else to take a look. And try getting an outsider's perspective. It is often very helpful. 

Susan/Wink and Flip

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