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Getting comfy with your numbers

Last year I shared how it’s difficult sometimes as an allied health professional as we don’t necessarily learn the financial aspects that are required to run a service, or run a business. Today we continue our learning...

Let's first recap what we have learnt so far: as a basic start, we need to know about our Profit & Loss Statement and Balance Sheet.

Today, we will continue with the Profit and Loss Statement: so, what does this “Profit & Loss Statement” do for us?

  • Measures the profit (or loss) of your practice over a specified period
  • Provides a picture of your businesses trading performance
  • Summarises the income you are making and subtracts any expenses incurred

There are 5 main components to a Profit and Loss Statement:

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As a business owner, there are a few things to consider:

Your Profit and Loss Statement does not include some things, for example: principal repayments don’t count as an expense and you personally injecting money into business does not count as income. These are located on balance sheet – your Profit & Loss can give a lot of information, but costs you pay out like a business or car loan are recorded elsewhere.

Now, a great exercise your Profit & Loss Statement allows you to do, is to study your gross and net profit margins which can reveal trends to enable you to make good business decisions or practice changes.

Last time we looked at our gross profit margin, which is your gross profit as a percentage of turnover (or income), so today the net profit margin will be our focus.

Your net profit margin compares your net profit to your turnover. In Australian small business, the average net profit margin is reported as 10% annually.

So, to find your net profit margin (figures are for example only)

50,000 (net profit) / 300,000 (turnover) x 100 = 16%

If your Net Profit margin starts fall time it may mean you are paying proportionally more in expenses than you should be - expressing it as a percentage means you can identify problems you didn't know existed. For example, say your turnover increased to $600,000 and your net profit to $60,000 - sounds good right? However, when we apply the net profit margin ratio:

60,000 (net profit) / 600,000 (turnover) x 100 = 13%

In this example, the net profit margin has actually dropped, even though turnover and net profit have increased. You may readily identify the reason - perhaps you put on a new staff member, or costs have increased elsewhere? Is your net profit margin actually worth all you are putting in?

Why not sit down with your financial statements, apply the net profit margin equation and see what you are sitting at - if you are not already, start to track your net profit margin over time, and chat with your accountant about any fluctuations.

If you are looking at improving your financial knowledge, why not consider registering your interest for our popular 3 part webinar series: Financial Knowledge for Allied Health Practitioners. Email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to register your interest.

ps. remember I am by no means a financial specialist so the information I share here is not financial advice; it is more about presenting things for you to think about, words to know, and questions to ask when talking with your accountant, bookkeeper or financial advisor.

Read 2695 times Last modified on Tuesday, 23 February 2016 08:45

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