Five 2 Thrive

Week #2- The most important number...

The most important number is: ᴺᴱᵀ ᴾᴿᴼᶠᴵᵀ

Okay……what does ᴺᴱᵀ ᴾᴿᴼᶠᴵᵀ mean? I bet you hear that phrase a lot, but are not really sure what it is?

ᴺᴱᵀ ᴾᴿᴼᶠᴵᵀ is actually the sum of income (sales) from your business subtracting away all of the allowable deductions (expenses). What is left over is called ᴺᴱᵀ ᴾᴿᴼᶠᴵᵀ, sometimes referred to as earnings or “your bottom line”.

Be careful here to not confuse earnings in your company with sales. Earnings or ᴺᴱᵀ ᴾᴿᴼᶠᴵᵀ is only what is left over at the end of the month, or end of the year and is taxable, it is not your total sales number.

But you may laugh and say, “Of course I knew that!” Well then good for you, most new clients I take on, when asked how much they made last year, never know. They say the CPA just calculates that number for their tax return.

So then, how are they able to make decisions in their company? Such as when to cut expenses, buy equipment, hire on employees or even feel comfortable taking one dollar out for personal use? They only look at how much money they have in the bank. But this will not give them the full picture.

When the bank account balance becomes their guiding star on running their business, it can trigger emotional, illogical decisions. If the bank balance is up, buy stuff, if it is down, quit buying stuff.

Tune in next week when we analyze that other important number cash balances and how to use it. While it is very important to look at, it must never be used alone to predict business health.

Renice