Jim Business Facts

If you have not done the exercise from my previous article, I strongly suggest you get a copy of it and do it now! You cannot do the following exercise without the first part – but you can still gain information from this reading. With these figures, we’ll now skip around to the top of what will be our operating statement — the Gross Sales.

What should your gross sales be? Do you have a figure in mind? Write down that amount. Here we’ll use $100,000 as an example, as a starting point. Right off the bat, you can slash off 50% for your cost of goods. In other words, the widgets you sell for $10 each will cost you $5. For some businesses this will be more, for other it may be less, it depends on the type of industry one is in.

So, with our example here we’re left with not $100,000 but $50,000 in what we call gross margin. If your total expenses you listed in the last exercise came to $20,000 a year and you want to make $30,000 salary, there’s your 50K used up!

Your next step is to look at this and adjust the figures. If you need another $10,000 to take care of other expenses you may have forgotten, or to grow, or if you decide you want to make $20,000 more in order to hire some part-time help as soon as possible, go back to that $50,000 and add your $20,000. We now have $70,000 in expenses right at the top, before operating expenses.

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