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by Cristina Garza | Jun 28, 2017 | | 0 comments

As accountants, we often hear the same question time after time from our small business clients,

To answer this question, one should rely on your company’s Income Statement rather than your bank balance.

Let’s start by understanding the Income Statement and its structure:

A standard Income Statement should include two parts:

1) Gross Profit: This is Revenue minus Direct Costs. This is typically found at the top of the income statement.

“Revenue” is income from your company’s primary sources of operation aka

For example, for a computer store, revenue might be income from computer sales and / or computer repairs charges. Alternatively, interest income earned from your bank account is not revenue

(typically this would be considered “other income”), because likely you are not a business that primarily earns money from bank interest.

“Direct Costs” (aka- Cost of Goods) are any costs attributable to generating income. For a computer store, some exam

ples of direct costs include the cost of purchasing the computer from a computer manufacturer, commission paid to salespeople, freight and postage related to shipping the computer to customers, or any merchant service fees attributable to each computer sale. Direct costs are typically variable costs as direct costs are positively correlated to the amount of products or services you sell. This means for every computer you sell / repair, your direct costs should increase.

2) Net Income :This is gross profit minus overhead expenses. This section is typically found at the bottom of your Income Statement.

“Overhead Expense” is anything not directly attributable to generating revenue. Some overhead costs include facility rent and utilities, repairs and maintenance, salaries and wages for office staff, and professional expenses. These costs do not attribute directly to generating sales, but are essential to the overall business operation. Even though these costs might grow as your business grow, they are not directly correlated to the number of sales your company makes. For instance, paying for your accounting staff will not directly increase computer sales, you need an accounting staff in order to keep your business operational. Therefore, accounting staff costs would be considered as an overhead expense.

What does it mean for me?

For a job to be considered profitable, it must generate enough gross profit. To break it down, the revenue you receive from the job should be sufficient to cover the job expenses.

For a business to be profitable, the gross profit from all active jobs must be sufficient to cover your overhead expenses.

So… Where’s my money?

The problem is that some businesses don’t see that profits from each job must cover company overhead first before flowing through to your company bank account. Although certain jobs generate more revenue than direct costs (i.e.- they put money in the bank) these jobs might not generate enough gross profits to generate profits after overhead expenses.

I have money in the bank, doesn’t that mean everything is okay now?

The cash balance in your bank at a point in time is not an indicator on company profitability. You may also owe some of that money to lenders or to owners- that money sitting in the account has someone else’s name on it! Also, due to timing and payment terms, certain cash outflow might not happen until later during the fiscal year.

For instance, insurance payments often are not divided in equal monthly payments. Based on the payment terms negotiated with your insurance company, your company might have to remit payments as a lump sum or as quarterly payments every fiscal year. The Income Statement, however, will take all of these “accrual items” into consideration, and it will provide a much accurate indicator of your company’s profitability.

Therefore, we always recommend clients to rely on an accrual basis Income Statement to determine company profitability instead rather than looking at cash balance at the bank.

What ties the Income Statement and the Balance Sheet together? The Statement of Cash Flow! Don’t worry! We will cover the Statement of Cash flow in another article….


Looking at your Income Statement (vs looking at the bank balance) can help you better understand the profits of your small business.

At Accountingprose, we are small business experts and can provide your company beautifully tailored financial statements. Want to know more? Leather Statement Clutch Meowenstein by VIDA VIDA Cheap Sale Perfect t4VIFkV3j

“I think I’m making enough money….there is money in the bank…does that mean my business is profitable?”

Considerations: Set the tree up in your lobby or another public area to maximize exposure.

Modernize your fundraising with a text donation campaign.

Considerations: Work with a company like Mobile Cause to streamline the process.

Use a thermometer to track your fundraiser. This is a great idea if you have a centrally located, visible office. Or, ask your town if you can set up a jumbo thermometer at a popular location such as a park or street corner.

Considerations: Use a thermometer in conjunction with another fundraiser, such as a penny drive, bottle donation collection, or fundraising cards.

Put these coin collection jars around town. Ask about setting them up in locations like town hall, library, restaurants, and other businesses (with permission, of course). You’ll be amazed at how quickly the change adds up.

Considerations: Your “container” can be anything from a cardboard box to a plastic container. Don’t forget to add your logo/branding!

Hand out flyers and encourage supporters to grab a meal at Panera on a specific night.

Considerations: The more The Grind leather tote Marc Jacobs Free Shipping Big Sale Gjzj0VC
, the higher your percentage back will be. For example, 0-19 flyers redeemed = 0% proceeds back. However, if 50 or more flyers are redeemed, your percentage raises to 20%.

Similar to the Panera Fundraising Night, the Chick-fil-a Spirit Night is a good fundraiser for schools. Families get to enjoy a meal out, while supporting their favorite nonprofit or charity at the same time.

Considerations: Contact your local Chick-fil -a to schedule a Spirit Night event.

Candles are an easy sell and Yankee Candle offers a great fundraising program good for schools, churches, and nonprofits of every size.

Considerations: Check out this handy calculator on Yankee Candle’s website to determine how many sellers you need to reach your fundraising goal.

Tree saplings are an affordable and desirable item that your supporters will have an easy time selling.

Considerations: Purchase trees in bulk from a local nursery or the Arbor Day Foundation .

Does your community host a holiday festival, winter farmer’s market, or another event that brings people together? If so, help community members warm their tummies by selling hot cocoa.

Considerations: Borrow or rent an insulated beverage dispenser (or two) from a local restaurant or catering company that holds the hot water.

Fundraising scratch cards are like playing the lottery- for charity! Personal fundraisers ask supporters to scratch off sections of the fundraising card (as many as they’d like) and collect the funds from that donor.

Considerations: Scratch-off cards vary in cost, but most average around $5 per card. A quick Google search for “Fundraising scratch card” provides you with ample options.

Sell discount restaurant vouchers with proceeds going to your nonprofit or charity through the fundraiser.

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Director, CDTFA Nicolas Maduros

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1-800-400-7115 P.O. Box 942879 450 N Street Sacramento, CA 94279 Email CDTFA

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