Are You Busy Making Money—or Are You Just Busy?
It’s so exciting to feel that your business is making money. After all, who doesn’t love to make money? But the excitement can be short lived when the end of the month or year comes and there actually isn’t any money left over. If you have found yourself in this position, you’re not alone. All too often, business owners or managers confuse being busy with making profits, and they are not one in the same.
Most business owners spend a lot of time being busy—managing employees, operations, and finances. And because they’re busy, that can make them feel like their company is making money. Common sense would dictate that the more work you have, the more money you’re making, right? But the reality is that business owners are often surprised when they review their numbers and find that being busy did not equate to actually making money.
There’s a difference between making money and generating profits—two very different elements of a business. Making money simply means the amount of money (cash) a business brings in because of sales (jobs). This is the top line. Generating profits is what’s left over after you subtract all the costs (expenses) of doing business. This is the bottom line.
For example, let’s say a business generates $100,000 in sales in one month. That sounds like a great month, and the business was probably very busy! Now, total up the business’s monthly expenses (rent, utilities, payroll, supplies, and so on), and let’s say that equals $75,000. Subtract the two numbers, and the profit is $25,000.
Making money = $100,000
Generating profit = $100,000 – $75,000 = $25,000
That’s a great month both making money and generating profits!
Now let’s consider what happens when being busy ends up costing a business a lot of money. This is where business owners can find themselves upside down. Being busy without keeping a close eye on the costs associated with that busyness can catch an owner off guard.
For example, let’s say a business generates $100,000 in sales. Monthly expenses were $110,000, maybe due to rising fuel costs or increased subcontractor and labor expenses needed to complete the work. When these numbers are subtracted from each other, we find the business actually lost $10,000.
Making money = $100,000
Negative profit = $100,000 – $110,000 = –$10,000
The business was busy and appeared to be making money, but it wasn’t really making money in terms of profit. Although it felt like the business was doing well because it was busy, it was spending a lot of money to support that busyness.
The difference between making money or not lies in positive or negative profits.
Positive profits mean a business is earning more than it is spending. Owners are managing cash and expenses, and the business is creating profits—more money than it spends. This requires someone to be looking at the numbers on a regular basis, before more money is spent than was earned.
Negative profits mean expenses are higher than what the business is making in sales. When expenses surpass revenue, the company is operating at a loss. This is the point where owners and managers need to analyze expenses and make necessary adjustments.
Being busy can be a distracting place to find yourself. Be careful not to allow the busyness to distract from the business. Being busy is a good thing when a company is making money, but not when that busyness is costing more than it is generating.
If you’re an owner or manager and not currently in the practice of looking over sales and expenses on a regular basis, create a new habit of doing so. Making money is simply about the total revenue a business earns, while generating profits considers the expenses associated with that revenue. Knowing where your numbers are will help in determining the true financial performance and success of your small business.