Why should you consider having a business?

   Life shouldn't be all about money. However, we should not disregard the reality that we need money to have a good life. Don’t think so? Let’s hear from Anna.

   Five months ago, Anna felt like the happiest woman in the world. She got married with the love of her life and more than anybody else, she was most excited to have her own family. With a loving spouse, all she ever wanted that time were two perfect kids, and a warm and comfy home.

   Her husband’s parents had a house built for them. Everything seemed perfect and she believed they were ready to have a family. A month after their marriage, Anna learned she was pregnant so she had to stop working. Her husband worked for a big company and his monthly salary was enough to support a family of three so they had nothing to worry about.

   Four months later, the company her husband was working for, had an unexpected crisis and had to stop running. Anna’s husband lost his job and that was the beginning of sleepless nights for the couple. They knew very well that their savings won’t be enough to pay for the hospital bills, buy all the things they wanted for their baby and the baby’s needs, and maintain their current lifestyle at the same time.

   Stress in their home grew every day, as Anna’s husband came home with nothing but frustration from unsuccessful attempts of finding a new job. The couple, both agonized by the situation, began to argue more and more each day. This was not good for them, neither for the baby.

   
   Five months ago, everything seemed perfect and now, everything seems to be falling apart.

   Now do you think we need money to have a good life?

   Nope. Because you know so. J

   Anna never lost hope. She couldn’t give up easily and let everything she dreamt of turn into a nightmare. She thought of using some of their savings to run a small business at home. Anna did everything to learn about business and is sharing some of her new knowledge with us.

Profit and Loss

                Profit is the amount by which the sales are greater than the cost of goods sold and the operating expenses. Margin also means gain or profit.

                The formulas in computing profit are as follows;

                Net Sales = Gross Sales – Refunds and Allowances

                Net Profit = Gross Profit – Operating Expenses

 The net sales and profit may also be given in scheme diagram as follows:

                                    Gross Sales

                                -   Sales Returns and Allowances

                         _______________________________

                                    Net Sales

                                -   Costs of Goods Sold

                         _______________________________

                                    Gross Profit

                                -   Operating Expenses

                         _______________________________

                                    Net Profit

1. Gross Sales is the actual amount received for selling the goods.

2. Refunds are amounts returned usually if goods are defective.

3.  Net sales are obtained when refunds are being deducted from the gross sales.

4. Costs of goods sold or buying price is the amount paid for articles bought including the buying expenses.

To compute for the cost of goods sold for a period of time, we have the formula as follows:

                Available Goods = Beginning Inventory + Purchases

                Costs of Goods Sold = Available Goods – Ending Inventory

The above may be diagrammed as follows:

                                   Beginning Inventory

                                + Purchases

                          ______________________

                                   Goods For Sale

                                -  Ending Inventory

                          ______________________

                                   Costs of Goods Sold

5. Inventory is an itemized list of goods on hand.

6. Gross Profit is the difference between the net sales and the cost of goods sold.

7. Operating expenses or overhead are selling expenses such as salaries or wages, traveling expenses, rentals, water, electric bills, commissions, taxes.

8. Net Profit is the amount obtained when all the selling expenses or other cost of doing business are deducted from the gross profit.

In case the sales are less than the cost of goods sold, there is a loss. The formulas in computing losses are as follows:

                                Gross Loss = Costs of Goods Sold – Net Sales

                                Net Loss = Gross Loss + Operating Expenses

The relationship of the terms of loss may be diagrammed schematically as follows:

                                  

                                    Cost of Goods Sold

                                 -  Net Sales

                                _____________________

                                    Gross Loss

                                +  Operating Expenses

                                _____________________

                                    Net Loss

  "When you reach an obstacle, turn it into an opportunity. You have the choice. You can overcome it and be a winner, or you can allow it to overcome you and be a loser. The choice is yours and yours alone. Refuse to throw in the towel. Go that extra mile that failures refuse to travel. It is far better to be exhausted from success than to be rested from failure."

- Mary Kay Ash, founder of Mary Kay Cosmetics
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Checked by Prof. Crisencio Paner