How to find your healthy income!
Firstly we need to define what a healthy income is?
Now this question and answer is different for everyone. As you read this I want you to write down your figure as an annual amount. Lets say for the purpose of this exercise that your figure is EBIT (earnings before interest and tax).
Healthy income = ____________ Per Annum
Investopedia.com = Definition of ‘Earnings Before Interest & Tax – EBIT. An indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as “operating earnings”, “operating profit” and “operating income”, as you can re-arrange the formula to be calculated as follows:
EBIT = Revenue – COGS – Operating Expenses
Also known as Profit Before Interest & Taxes (PBIT), EBIT equals Net Income with interest and taxes added back to it.
Now that you know the figure, how are you going to make this your income? By the way congratulations if you are already at this point. You don’t have to read any further.
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If you want to increase your income and create the healthy income you dream of you need to work out your current position.
Revenue = ____________________________________
Cost of goods sold = ___________________________
Operating Expenses = __________________________
Balance = _______________________________EBIT
DON”T STRESS ABOUT THIS FIGURE, now you know the truth you can do something about it. Even if the figure is a negative number, chances are you did not realize, so now you can make the right changes and move forward.
You may also have recalculated your healthy income figure, if so write it down.
It is important to realize that your cost of goods sold and expenses will increase with more turn over so this needs to be taken into account also.
For now though lets just focus on how to gain more revenue!
Once you have set your healthy income figure, divide it by 52 to give yourself a weekly target. Now each week you need to do what ever it takes to generate this turnover.
Lets say you want it to be $1000 each week. What do you have to sell to reach that amount?
For some businesses they may only need to sell one product or service and for others it will be many. What is it for you?
If you are selling a service – How many potential clients do you need to see in order to get one signed up, 1 in 3? This will tell you about how much marketing will be required.
If you are selling a product on a website – Not every visitor will buy. How many visitors buy is the figure 1 in 5? Now you know how much traffic you need.
I know this all sounds difficult but My Sassy Business can help to create a plan for you that will make a difference. Free 30-minute consultation to get you started.
You may also want to look at our workbook “Financial Fundamentals for Small Business”.
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