FInancials
Running a small business requires balancing profit, ingredient cost, and sales. Over the past months, my business has grown and increased profit in sales. When taking into consideration ingredient cost I can determine the continuous growth of the business. Each of my cookies sells for 20 pesos, and I sell approximately 40 cookies per day. I used to sell half batches- 20 cookies- on Fridays since school was cut short. Now, after much progress in the business, I sell 40 cookies Monday through Friday. This means that my daily revenue is 800 pesos, and my weekly revenue is 4,000 pesos.
However, there is a difference between revenue and actual profit. I try to find the best ingredients to enhance my cookies, which deducts a lot from my total profit. Each week I buy butter, sugar, and Nutella, which are both the most expensive items, and the most used. My total weekly expenses on groceries is about 2,000 pesos, though it might vary depending on sales or cost inflation. This means that my average profit per week is 2,000 pesos; my real earnings per day are 400 pesos. Using the profit margin to identify what percentage of my revenue is profit, I found that about 55% of revenue is profit. Based on these numbers, the profit margin is about 50% (based on the 2,000/4,000).
A 50% profit margin is significantly strong when compared to other profit margins in the business world. Profit margins for bakeries and restaurants are often 5-15% after taking gas, light, rent into account. By operating a 50% margin my business demonstrates low external costs such as gas, light, rent and expenses that don't consist of ingredients. WIth this my business has a cushion for ingredient cost increase.
There is also a significant difference between gross profit margin and net profit margin. Gross profit margin:measures profit remaining after deducting the cost of goods sold, this is the direct cost of producing the cookies (4,000-2,000=50%). On the other hand, net profit margin is the profit after all expenses are deducted. In my business, my gross and net profit margin are the same because I don’t have any expenses other than ingredients.
Moreover, these numbers allow me to track my progress as the business changes, and understand where the money I earn is going and how much I get to actually keep without having to invest it back in the business. Looking ahead, I can use these numbers to predict weekly revenue and profit if I change ingredients or any other aspect of the business. Maintaining a high profit margin allows me to have a cushion that I can use later if I have if I ever need to cover other expenses.