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Proceed With Caution: When NOT to Change

August 20th, 2010 | Comments Off | Posted in Tips & Advice

If your business is just starting out, there’s a challenge that you’re about to face that you might not even realize. Yes, there are numerous business challenges you’re already going to be wrestling with over time, but here’s one that you need to figure out early.

Fortunately, this decision is a “set it and forget it” decision because once you’ve decided, you shouldn’t change.

I’m talking about depreciation. When you buy an asset, you spend a lot of money all up-front but it won’t always be worth that amount. To use a really simple example, if you bought a $25,000 car and kept it for 10 years, you know it wouldn’t be worth $25,000 in the asset column of your balance sheet the entire time. Cars depreciate just as all assets do.

So here’s the “set it and forget it” decision you have to make:

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Income Statement Breakdown (Part 3): Operating Expenses

July 21st, 2010 | No Comments | Posted in Tips & Advice

This is part 3 of a 4 part series on the income statement. Taking the time to understand each part of your income statement will help you to save money and make more money in your business.

In the Revenues section of your income statement, you started with Gross Sales and ended with Net Sales.  In the Cost of Goods Sold section of your income statement, you had the choice of either using the accrual method or the cash method to take the Net Sales number and end up with Gross Profit.

Now, we’re looking at operating expenses. Operating expenses, as the name implies, are the expenses associated with running your business. These expenses might include salaries, advertising, supplies, rent, insurance, utilities, and depreciation. These are added up and subtracted from the Gross Profit number we calculated in the last section of the income statement. The number we’ll end up here is sometimes called Net Profit and sometimes called “Income”.

Let’s keep building on the income statement of the fictional business we’ve been talking about, but we’ll use both the accrual example and the cash example so you can see how both work:

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