When you look at all the money your home business makes, it is important to be able to distinguish how much of that is revenue and how much of that is profit. The difference is usually staggering and will determine how much you can take as pay and also how much you can put back into your home business to make it expand.
A big mistake that many home business owners make is that they view their revenue as all profit. In other words, they may take in $1000 in sales for the week and figure that is $1000 they can keep for themselves or dump back into the business. However, you have to factor in everything that brought in that $1000 of revenue.
If you had to spend $500 to make that $1000, then your home business just made a profit of $500. So, the first $500 has to go to pay for what generated the $1000 of revenue, such as goods to sell, packing materials, advertising, and so on. With the remaining $500, you can then take some or all as pay or put it back into your home business for growth.
What is important is to always be sure you are making a profit. What you don’t want to have is $1000 in revenue for the week and then look back and realize that it took $1200 to make that. If this happens, that means that there is not only no profit for you to enjoy, but there is a deficit of $200 that you must now deal with.
Just remember, revenue does not necessarily equal dollars in your pocket as a home business owner, unless it has covered all of its expenses and then some. The ‘then some’ is your profit and yours to do with as you see fit.