What is Business Profit and Why is it Important for You to Know it?

By Kimberley Borgens

You are a service-based business and invoice for your services?

Wait, you are not invoicing yet? Seriously, create an invoice, forward it to your client, and then file the invoice and mark it paid when you have been paid in full for your services. Don’t forget to have the terms of service on your invoice. I don’t care if you do this digitally or in paper form but it is important to do as well. If you are being audited and it is likely that it will happen at some point, then doing this from now on will save you a lot of anxiety, angst, and headache down the line.

Back to the importance of understanding your business profit.

Take all that you invoice and then all that you receive as payments and compare the two. If you didn’t get paid completely on something then you need to do your own collections.

Here is an example that we were faced with.

We invoice clients on a weekly basis. While doing an in-house audit I noticed that one client would significantly underpay their invoice one week a month. We went to the client and said what is going on. They didn’t realize this was happening. It was when they were at the end of their monthly budget and the system would only pay what was left in the budget for that month. It would not pay the full amount. My team had to call them on it and get them to make sure they paid the remaining balances and make sure their system did not do it again. They got caught up and this issue never happened again. If you are not invoicing and comparing those invoices against the payments you may be shorting yourself in business. Oh, I hear you, “Kimberley I am not big enough yet to worry about this. So I know this is not for me right now.” HA! Get in the habit now when it is a simple task and when you grow you will be able to be ahead of the game and be able to teach anyone who comes in to support you as you grow towards your seven figures. It will be so much easier now to understand what your business profit is now versus waiting until you are too busy to implement it.

 Let’s take a look at your business money.

There is money coming into your business and that is considered cash. This cash is from clients and customers that are paying for your services and products. This money is called revenue, gross revenue, or gross income.

There is money going out of your business and that is considered payments. These payments are for expenses such as taxes, office rent, utilities, business loan payments, car payments, insurance, licenses for your industry, state, and city, web hosting, email services, and any other accounts payable. This is called your expenses.

Then there is what is left over after you account for all the revenue that comes in and subtract all the expenses that need to get paid. When you have no bills left to pay, any money left over would be called profit or you may hear it called net income or net profit. This can also be a negative number. If you are not paying attention on a regular basis you can come in at a loss in your business.

When you pay attention every month or every quarter in your business you will get an idea of what is business profit and you can start to see why this is important for you to increase your profit to not be in the negative at the end of the year.

How will you know if you need to increase your prices if you are not paying attention to your expenses?

There are three main ways to get a raise in your business profit.

  1. Raise your prices.
  2. Get more clients.
  3. Lower your expenses.

If you are not paying attention to your numbers early in the year then how will you know if you are making a profit in your business? You must have a pricing strategy to be able to pay the expenses you are incurring as a business.

You can raise your prices and have fewer clients. This is a great pricing strategy when you are selling your time for money. Coaching and consulting are great examples of selling your time for money. In the Sales Machine Program, I have a valuation tool to help you discover the best way to price your time if you want to check that out. Mostly you will want to compare what you are charging for your services and are you making a profit from each one. I have spoken to many coaches who have done a lot of training and getting certifications and are undercharging for their services. This is usually because they feel that if their prices are lower people will actually hire them. I found it to be the opposite. I charge more and make sure I deliver and they are willing to pay. Charge for your skill level, not your confidence level!

You can get yourself more clients to increase your revenue. What would you like your gross revenue to be at the end of the year? How many clients would you need to have at your current prices to reach that number? Once you know that number you can make some decisions from there. Is it feasible for you to work with that many clients in a year? Or do you need to add something else to your services to counterbalance that time?

Time to take a look at what you are spending your money on. Making a profit is important in your business because if you are not making a profit then how do you expect to pay yourself in business? If you are not paying yourself then you are not able to invest in your future to keep the freedom you got into being an entrepreneur. What are you spending? Is it a necessity? Is it truly helping you in business? Is your CRM costing you $300 a month and you are not using it to its capabilities? Maybe a $100 CRM is all you really need. Are you buying the latest greatest cell phone each new launch? Maybe you wait a year and get the next one. If it is working then don’t automatically upgrade if it is going to cost you. A $1000 a year put away for your future is truly worth it! Look at your expenses and see if you need all of them at the level you are paying for. Being part of a cohort or incubator will probably save your money than having an office of your own. And you can probably collaborate with other small businesses too.

When you consider these three areas when it comes to creating a profit in your service-based business you can expand and make money. Stop being the person just barely scraping by because you don’t know the differences between revenue, expenses, and profit. Bringing in the money is just one piece of the equation. You have to watch your expenses, pay yourself and create a profit. The profit will help you discover what you can do the next year to up-level yourself. How can you join a program, mastermind, or do a website overhaul if you don’t have the money to do them? It may be time to hire a bookkeeper to take a look at how you can write off expenses and get the most out of your revenue. It’s time to pay attention and be more like the CEO “Boss Lady” you envisioned for yourself as an entrepreneur.

Want a business profit formula? Revenue – Expenses = Profit

Make sure your revenue is exceedingly higher than your expenses and create a profit. Then let your accountant help you use that profit to your benefit and only pay the amount of taxes based on strategic tools to your benefit. You have the same opportunities as the “rich people” in regards to reducing your taxes. Hire an accountant to look over everything in September or October every year to give you the best suggestions and advice to set you up right for your yearend profit strategies.

You can be a successful entrepreneur even if numbers are not your favorite. Know your number anyway and outdo your competition.


How to Raise Prices Without Losing Customers

Strategy is Different In Service Businesses

Kimberley Borgens

About the author

Kimberley Borgens was married at 18, a mother at 19, and divorced at 20, she has journeyed from being a single mom on welfare to recognizing her strengths, fighting for what she believes in, and successfully building 5 thriving businesses with hundreds of employees and million-dollar budgets. Kimberley is a speaker, business mentor, and coaches her clients to transform their small business into a thriving business. Kimberley is living her own legacy as she inspires and motivates women to be fearless, become more like a CEO of their business and life, and enjoy the freedom they've dreamed of. She knows what it's like to start from nothing and build a strong solid business and she can help you too.

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