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1. SMALL
IMPORTANCE OF COMPUTING BUSINESS
BUSINESS
START UP
PROFITABILITY

2. Importance of computing business profitability
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If you are the owner of a business or contemplating starting a
business, you should understand the importance of computing
business profitability. With any business, no matter what good or
service is being provided, it is very important that the owner
understand the business side of the business. The purpose of
company is to generate a profit.
Revenue versus Profit
Many people think that profit is the money a business brings in.
This is not true. The total money brought in by the business is
called revenue and this is different from profit. For example, if
you sell an item for $100, you have $100 of revenue. To get to
profit, you need to subtract the expenses out. For that $100
product, it may have cost $50 to make, there could have been
additional overhead costs of $10, and employee expenses of $5
associated with that product. That would mean that there was
$65 of expenses associated with that one product. So out of that
$100 of revenue from the one product, you will make $35 of
profit.

3. Importance of computing business profitability
As you can see, it is important to set your business goals to make
a profit, not just make revenue. This is the importance of
computing business profitability. You need to make sure that your
business brings in enough money to not only cover the expenses
but make sure that there is something extra so that you can take
some money out of the business.
Fixed Versus Variable Expenses
When computing business profitability, you will notice that your
business has many different expenses. Some of these expenses
are fixed and others are variable. Fixed expenses are expenses
that you must pay not matter how much product you make.
Examples of fixed expenses are rent, employee expenses, and
some utility costs. In the above example, the $10 of overhead
costs and $5 of employee costs are fixed expenses.
Variable expenses are expenses associated with creating
additional product. In the above example the $50 cost to make
the product is a variable expenses. You only have this expense if
you produce an additional product.

4. Importance of computing business profitability
It is important in computing business profitability, that you make
sure that you are at a minimum covering your variable expenses.
If you are not covering your variable expenses, then you are
losing money with each unit you produce.
Get Professional Help
Computing business profitability can be a tall order, especially for
a small business owner. You should hire a competent accountant
or attorney to help you with your analysis. There are many
profitability ratios that can be used to show the health of your
business.
The More You Know
The more you know about the profitability of your business, the
better off you will be. It is important that you stay up to date
regarding the financial health of your business. You should
constantly be computing your business liability and making any
necessary changes.
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clients and boost business profitability. Click here

5. Importance of computing business profitability
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