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Small Business Profitability – 3 key elements that you need to focus on

Many businesses only survive. Eroding enough sales to pay bills and no more. But it doesn’t have to be like that. By focusing on three key elements, your business can be profitable and successful.

To be successful every business owner, big and small, need to focus on the following:

1. Net income

2. Returns of investment

3. Cash flows

Let’s look at these three key elements a little more detail:

1. Net income

Net income is the amount left after you retrieve all the money produced by your business and reduce all operating costs. You need to make sure that your expenses are less than your income so that your business realizes profits.

This means that business owners need to control and manage processes and activities that affect net income.

2. Return on Investment (ROI)

The return on investment is to tell you how efficient your business is. This is a key element that is often ignored by small business owners. Usually measured by the following calculations:

Investment returns = Net income divided by assets.

Because ROI is the size of how much you get out of your business compared to how much you put in it, business owners must aim to have ROI that increases from time to time.

A growing investment return means you use your resources efficiently. There are only three ways to improve your ROI.

1. Grow net income

2. Reduce your investment in assets

3. The combination above.

It is important to note that a business cannot generate profits if your investment in assets is greater than your net income.

3. Positive cash flow

Cash into your business like oil in your car. If you don’t have enough, they will stop. Cash flows are all cash flowing in and out of your business. Your goal is to keep as much as possible.

The growing business will generally increase its investment in assets. But to maintain this growth, you also have to grow sales. Your business cannot grow faster than your cash flow allows, so you need to make sure you have maintained enough cash in your business to maintain growth.

and 4. (your free bonus!)

If you want your business to really make money, you must save the elements above and controlled simultaneously to ensure your business is profitable and successful.

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