Gross profit is revenue less cost of goods sold. Contrary to many other accountants, I recommend that you not include any labor costs in getting to gross profit. By keeping labor out of the equation, my definition of gross profit gets you to the number that is the true economic engine of the business.

Your core capital target is simply this: two months of operating expenses in cash and nothing drawn on a line of credit.

EBITDA is earnings before interest, taxes, depreciation, and amortization. However, as a small-business owner, you should always include interest, depreciation, and amortization as part of your pretax costs. Focus on pretax profit instead of EBITDA. Ignore revenue and focus on gross profit. Your breakeven point is 10 percent: 5 percent or less of p

Entrepreneur: My average account in the disaster restoration business was ninety days overdue. That’s one of the reasons I’m not in that business anymore. Greg: In the disaster restoration business, you often encounter disagreements with insurance adjusters, and then the average turnaround on accounts receivable (A/R) is about ninety days. To survi

Quick Tips About QuickBooks There are some great features in QuickBooks for producing P&L statements. You can set roll-up points for your key seven or eight lines of data we talked about earlier, then you can expand them for more detail or collapse them to see just those seven or eight lines. First look at the collapsed view across time and see

Maintain a minimum pretax profit of 10 percent or greater as you grow to the $5 million revenue level, and leave any profits after taxes in the business to fund the growth instead of relying on debt or outside capital. To maximize your productivity of labor, avoid labor creep, and don’t hire an employee for a function that you can do. Consider what

That’s why your revenue doesn’t matter. Your gross profit matters most, followed by how you get to pretax profit.

have tried many different profiles, but I prefer the Caliper Profile from Caliper Human Strategies (www.calipercorp.com).

Knowing the economic value of your business gives you a baseline to make decisions about either selling or keeping your business. The fair market value of your business sets the baseline for decisions in 50/50 shareholder deals. Generally, if you can buy out your partner for less than the economic value, you should take the deal. If your partner is