Profit
Profit =Sales- Expenses
Profit equals sales minus expenses seems easy enough to
understand. However, sometimes it is easy to overlook some of the details. For
one thing most people believe that your profit is what you make above and
beyond what you paid for an item. For instance if a store sells a candy bar for
$100 but only paid 75¢ it would be easy to believe that the profit on that
candy bar is 25¢.
Actually the 25¢ is the Gross Margin on the candy bar. This
will be discussed in a later post.
Actually that is true up to a point. However, in a retail
environment every item for sale has to pay its rent. Each month a retail store
has to pay a rent or mortgage payment, electric bill, water bill, phone bill,
internet access bill, payroll, insurance, maintenance etc. Every product that
store sells has to contribute its share to paying those expenses.
If an item sits on a shelf and does not sell, it does not
pay its rent. The longer the item sits on a shelf the more rent it has to pay
when it is sold. So, if our candy bar sits on the shelf for two months then
when it finally sells it has to pay its share of two months-worth of expenses.
All the rest is profit.
Disclaimer
The opinions or advice listed in this blog or website should be used as a place to start only. It is not a substitute for the use of a professional.
Please be sure to consult your attorney and/or accountant with any specific questions.
There is no one right answer to any business question that will cover all circumstances. Please Visit McClendon Enterprises
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