Knowing where and how money comes IN and goes OUT is the first step to building a profitable and sustainable business. If you don’t build a good foundation for managing your business by the numbers, it’ll be hard to cover your costs, so you can keep delivering your products or services!  

A clear understanding of how your business operates (your income, your expenses and the delicate balance between them) empowers you to set realistic goals and make better decisions.  Because entrepreneurs of color face hurdles like limited access to capital, this knowledge is even more critical. 

Here are three (3) steps you can take to get a better idea of how your business operates:  

Identify Your Spending Categories

First, do a bit of brainstorming:  Grab a stack of Post It Notes and jot down the names of categories on which you spend money.  For instance, you might write (one per Post It) office rent, business insurance, marketing or supplies. 

Capture every category you can think of – no matter how small.  When you’re done, you should have a thorough list of what’s needed to run your business.

Estimate Monthly Spend

Next assign dollar amounts to each.  Using the same Post It Notes, write in the amount you spend on each category.  If you spend $900 in office rent for instance, write that on the Post It Note that reads “office rent”.  Then keep going:

• Don’t stress if you don’t have EXACT numbers. It’s perfectly okay to start with ballpark figures or educated guesses.  You can always tighten it up later.   

• Since we’re calculating monthly costs, if you pay for something annually (perhaps insurance), divide that number by 12 so you have an apples to apples comparison. 

Total Your Expenses

Once you have an estimated or average monthly cost for each category, add them up!

If your number seems scary, don’t worry. This is just the first step toward understanding how your business operates. In this blog series, we’re walking you through an easy process for using breakeven targets to Crush Your Profit Goals.  Stay tuned for the next article – where you will learn how to put the pieces together.