Many small business owners assume they are making a profit simply because proceeds from sales exceed actual expenses. They don’t factor in some hidden costs of production which they get for free. These include accommodation, labour, power, utilities etc.
Some husbands complain that they provide generator and fuel for their wives businesses, and wonder why they don’t get their money back since the wife’s business is declaring profit. It is very likely such wives are not factoring in the cost of the generator and fuel in their profit and loss accounts. As far as they are concerned, they got it for free. Many who operate their business from home assume they are getting power for free and the generator supplies the main house also.
It is when you involve an accountant in preparing your books that you get to understand your actual costs. The fact that you are working for yourself does not mean that labour is free; same with accommodation, utilities etc. It is when you move into your official premises and hire staff that you get to realise that these are actual costs.
It reminds me of the story of Mazi Okonkwo. He saw his bank balance and was so excited, until his accountant reminded him that there were cheques yet to be issued, and issued cheques yet to clear. All the money he saw was not his!
Until you balance your books, it is too early to declare profit.
Usiere Uko can be reached at [email protected], www.inancialfreedominspiration.com twitter @usiere
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