Page 257 - merged.pdf

CHAPTER 8 MASTERING YOUR MONEY

To build a profitable business, you must ensure that your Gross
Profit Margins are higher than your industry average.
Companies can only maintain high Gross Margins (above
25%) over 5-10 years if they have a strong durable competitive
advantage and highly differentiated products, which mean
competitors cannot eat into their profits.

4) Fixed Costs (also known as Operating Expenses)
Besides the cost of producing your goods/services, you must
also incur the fixed costs of running your business every
month. These fixed costs are also known as operating expenses
(or overheads). They include costs such as sales & marketing
costs, fixed salaries, rental, telecommunications, transport,
research & development and depreciation.

Not only must you track your sales revenue constantly, you
must also do the same for your fixed costs. At the beginning
of the year, you must set a budget of how much fixed costs
you will incur and measure your expenses weekly and monthly
and make sure they don’t exceed budgets.

I have seen so many businesses lose money simply because
their owners did not track and manage their monthly fixed
expenses. By the time they found that they had overspent on
unnecessary expenses at the end of the year, it was too late.
The profits that they thought they made were not there.

5) Net Income (Profit)
Your Net Income (also known as Net Profit) is the actual
amount of money you have made after deducting all of your
expenses (including taxes). These are the profits you will be
able to use to pay out as dividends or reinvest into the business.

248 SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES