Profit basics
Read this Profits basics Info Guide to find out how to manage your profits more effectively.
Profit is the difference between business income and business running costs.
Business income
Business income derives from sales of products and services, such as rooms, food and beverages.
Business running costs
Business running costs include salaries, purchases of materials, eg food and beverages, and overheads such as rent and marketing costs.
Business running costs do not include the following:
- The capital portion of loan repayments
- The purchase cost of equipment and other assets
Remember!
Business running costs include:
- the loan interest charged by your bank in the year.
- depreciation, which is the amount that the value of equipment or other assets reduces by in the year.
This is usually calculated as a percentage of the original purchase price.
Profit and Loss Account (P&L)
Profit is usually reported in the business's Profit and Loss Account on a periodic basis, eg annually or monthly.
VAT
For VAT-registered enterprises, income and costs in the Profit and Loss Account do not include VAT.
top
You can lose potential profits if you fail to carefully manage and monitor your sales and costs.
How can I monitor my business performance?
- In advance of your trading year, prepare an Annual Budget of income and costs for the coming year, on a month-by-month basis.
- Arrange for your accounting system to produce a Profit and Loss Account at the end of each month.
- Compare your budgeted and actual results every month. Where there are significant variances, find out why and take remedial actions, where necessary.
- Use our Benchmarking Tool on an annual basis to compare your actual results, or your Budget, with average performance in the Hotel sector.
Remember!
Profit is essential to your business survival. You need profit to:
- expand.
- re-invest.
- pay loans.
- provide a return to the business owner.
top
Making a profit does not necessarily mean money in the bank!
Profit and cashflow differ in three key ways:
1. Activity
2. Timing
3. Non-cash items
Remember!
- Managing profit is key to long-term success.
- Managing a positive cashflow on a day-to-day basis is essential to short-term survival.
For more information on managing your cashflow, see Managing your cashflow
top