I know often I try to remind business owners that just about anyone can earn money. However, not many of them can tell me if they are profitable. Is profitable the same as making money? Can you be profitable with a small business versus a big business? Is it true that it takes a lot of money to make a lot of money?
I want to address these questions, and I am sure if you read along in my other blogs, you know making money is not the same as profitable. Profitable means you have money left over after eligible business spending and cost associated with the business. Profit comes before income taxes, but depending on your business structure, it will come after payroll taxes. Eligible business expenses are expenses the Internal Revenue Services (IRS) has deemed deductible before you pay their taxes. Basically, just because you make a purchase using business funds does not make it a business expense.
Remember cost of goods sold or cost of services sold comes before business spending (expenses) because those costs are either required to do the job or they are used to increase quality and production time. Cost of Goods Sold or Cost of Services Sold is cost related to specific sales. Many business owners make the mistake of just lumping them in with operating cost and calling it all cost of goods sold but they are not the same. If you make a sale, are you automatically profitable and you guessed the answer, no. As discussed above, profit comes after cost and expenses.
Also, do not include costs and expenses with reinvestment or investments. You can be profitable as a small business because profitability is not just determined by the number of sales or the amount of sales, and I know that may surprise you. If you don’t earn what the government or market considers a large or even medium business, you can still be more profitable than them as a small business owner.
One major overlooked habit that the secret millionaires have is they know it does not take a lot of money to make a lot of money, but that can also depend on your type of business. Most people can enter the market and be profitable if they stop spending on things they don’t really need or if you space out or time your spending, you will find you can build a stronger business model.
Watch the video example about a business owner that missed an important step although he made some very good points! What is he missing?
Author: Y. Michelle Coard, B.A.S, A.A.S in Accounting
President and Co-Owner of Business & Personal Accounting Solutions, Corp. or B&P Accounting Solutions, Corp.
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Watch this example and tell me what is missing?
Video length: 2 minutes and 55 seconds