I do believe that analytics can get in the way of understanding. After writing that article yesterday I looked at the numbers for the day. Here they are.
Sales: $675
Expenses: $790
Profit: $-115
Would I have made more money if I would have simply been closed for the day. Ignoring the long term affects on the business the simple answer is yes. My employee cost for the day was $215. So I would have made $100 if I would have stayed home and watched TV all day. Well that’s not exactly true, but for the most part it is mostly true. Of course the long term affects would be disastrous. Employees would not want to work here, customers wouldn’t want to come here and then I might as well close the doors for good. The point I am trying to make is that looking too closely at numbers can be a bad thing. That holds true for time periods long and short and details of where money is coming from and where it is going.
This leads me to my next topic. Numbers are not exact. People first want to know if I am profitable and then (if they are brave enough to ask) How much did I make last year. The answer to that question is “around $60,000” What do you mean around? You ask. That is right. There is no such thing as an exact true answer. I know they are numbers and 1+1=2 but that is not the way accounting and business works. Then if you mix in personal income with all of that it gets even murkier. There is so much gray. In fact there is a lot of gray in running a business. The language of business is not business. The language is a representation of business and does not always represent the business exactly. This is notated in general accounting principles with the general rule of materiality. Now in accounting this means that you should not spend $1000 tracking a $1 item. At least that is generally what it means. I can tell you this. There is no way that IBM knows EXACTLY how many staplers they have on hand and they should not have to know. The other accounting principle that exacerbates this murkiness is the general principle of accrual. This means that expenses should be accounted for in the period that happen and income should be recognized (“Hey I know you”) when earned. Let’s look at my own finances from yesterday. I said the expenses were $790. Part of that is the rent that I pay every month. I “accrue” and expense of $200 per day for rent expense. How accurate is that number? Well it is mostly accurate. I paid $54,418 in rent expense last year. We were open about 310 days last year (no I do not know the exact number). That would mean $176 per day. I decided to “accrue” $200 per day for a couple of reasons. 1. I do not know what my rent expense will be this year. If the landlords decide to repave the parking lot I will have to pay for that. I suspect the number will be larger this year. 2. I like big round numbers because it reminds me that the number is an estimate. 3. I don’t know how many days I will be open this year. I tend to make those decisions at the last minute. I will never be open on a Sunday. July 4th is on a Monday so we will probably be closed that day, but I won’t decide until we are closer to that day. I might be open rather than be closed for 2 days in a row, even if it is just for a couple of hours. So those three factors make my daily expense of $200 an estimate. And that is just one example there are more.
So in conclusion Am I profitable? Yeah I think so. How much do I make? I don’t know about $60,000 per year. Maybe I need to return to the origins of how I got here next time.