Knowing your NUMBERS; A real issue affecting Small Businesses in JAMAICA
By: Kmar HenryCEO │ BIZcare Consultation & Accounting Firm
Edited by: Anthonio James │ Danielle Lewinson
Date: April 05, 2018
It's a rather growing concern for many loan
officers and financial entities, that in this time and age we still have many
Small Business Owners who are still operating under the old guise; "what I
make is what I have left". If you should ask questions like 'what are your
purchases for the month, what are your expenses for the month? What's your
amount owed to creditors? What are the amounts owed to you from/by customers? or even more so, What's your
sales or revenue for the month?' You might be surprised to see the level of stuttering that comes from the lips of most of these entrepreneurs or small business owners in Jamaica. Especially if it is a scenario where accessing a loan is extremely pivotal for your business to survive.
sales or revenue for the month?' You might be surprised to see the level of stuttering that comes from the lips of most of these entrepreneurs or small business owners in Jamaica. Especially if it is a scenario where accessing a loan is extremely pivotal for your business to survive.
Whats your True Profit?
Let's say that we're operating a Grocery or
Hardware Store and we take our Sales or Revenue for the month and put it
against our expenses for the month. Do you think that we would be able to
access our true Net Profit after doing this solely? Sounds naive right? But I
can assure you that this is the concept of many small business owners. Not many
understand that the nature of operating a business will require you to conduct
an Inventory Count at the start and ending of each year. This is extremely crucial
in establishing the true amount spent to restock (purchases) throughout the
year or month. Hence, why the installation of an automated system is absolutely
vital, efficient and effective as all purchases will or can be entered as you
restock along the way. Cash Register soft-wares like Quick Books, Cash Register
System, POS etc. will save you not only time but money. Bear in mind that when
figures like your Opening and Closing Stock are not recorded, your accountant
will forced to either estimate those figures or use your purchases throughout
the year solely as that Cost of Goods Sold (C.O.G.S.) figure, even though you
have stocks on your shelves at the start of the year that were sold. Thus,
calculating your C.O.G.S. should be done using this formula:
Example (i):
Say for instance that Company XYZ starts the year with an Opening Inventory or Stock valued at $35,000.00 and made purchases throughout the year valued at $100,000.00 and ended the year with an Inventory valued at $65,000.00. Thus Company XYZ's Cost Of Goods Sold (C.O.G.S) would be:
$35,000.00 (O/Inventory) + $100,000.00 (Purchases)
= $135,000.00 - $65,000.00 (C/Inventory)
= $70,000.00 (C.O.G.S)
Calculating your Net Profit
Now, let's take into consideration that we know our
Sales/Revenue and your expenses for the year and you now want to know your Net
Profit. Take into consideration two things, firstly you must calculate your
Gross Profit which includes your Sales/Revenue less C.O.G.S
and then your expenses throughout the year is then subtracted. Hence, it's safe
to say that your Net Profit really shows the money that you have left from your
Gross Profit (after repurchasing) less all your Expenses
(costs to operate the business). Thus, let’s say for example (see example ii)
that:
Example ii:
Say that after Company XYZ calculated it's C.O.G.S. it now wants to know
it's Net Profit for the year 2017. Throughout the year it's Sales/Revenue
figure amounted to $230,000.00 and operating expenses amounting to $95,000.00
which included Salaries, Utilities, Admin & Marketing. Therefore,
calculating Company XYZ's Net Profit would entail:
Company XYZ
Income Statement
as at Dec 31st 2017
Sales $ 230,000.00
(Less) C.O.G.S ($ 75,000.00)
Gross Profit $ 155,000.00
(Less) Operating Expenses ($ 95,000.00)
Net Profit/(Loss) $ 60,000.00
Note: Bear in mind that is Company XYZ incurred expenses amounting to $170,000.00, the company would have therefore made a loss of ($15,000.00).
Recording is Key!
Although it might seem repetitive at times, that I
continue to stress the importance of recording; consider that it may be tedious
at first but by making it a habit it will become an easy skill that is
essential to the survival of your business. Imagine a business that operates
not knowing it's Sales/Revenue, Purchases & Expenses for the year? How can
or would that particular small business owner really know his or her Net Profit
for the year? This business owner would be guesstimating and supposing that they
make only an amount that's left at the end of the month. Which can either be
over or underestimated based on the purchases made and expenses incurred.
Hence, in it's entirety, proper recording must be done in order for any small
business owner to take his or her business to the level as you must know what
works and what does not (See Article 10 Things that Must be Recorded when running your Small Business). And also more essentially; YOUR NUMBERS!
If you need help or further information please feel free to contact us at 1 (876) 545-6928 or BIZcareConsultationAcct@Gmail.com to arrange your consulting session.
Thanks for reading, please give your feedback.
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BIZcare Consultation & Accounting Firm is a consulting agency that operates within the small parish of Clarendon in the beautiful land of Jamaica. We are geared towards educating the minds of upcoming entrepreneurs of the important aspects that must be considered before starting their businesses. Hence why we operate under the slogan 'Your Business is OUR Priority' and tagline 'Helping Small Businesses & Individuals to better Organise their Business Functions.'
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