When you run your own business, you need to keep your accounts in order. It goes without saying that you want to have a good grasp of the expenses you incur, the revenue you receive, and your company’s financial position. You can use these numbers to calculate your operating profit. Do you want to know how to calculate this and how it differs from your bottom line? Read about it below.
What is operating profit?
Operating profit is the amount remaining after deducting overheads from gross profit . The operating profit is also known as the operating or operative result. In short: operating profit = gross profit – overheads. The operating profit can be used, for example, to make new investments or to repay loans.
How to calculate operating profit
If you want to know your company’s operating profit, you can calculate it easily yourself. Do this by calculating your gross profit and then deducting your overheads from it. Take the following steps to calculate your gross profit:
- Calculate your company’s revenue.
- Calculate your company’s procurement costs. These comprise not only the price of the goods you buy in, but also, for example, the cost of returned goods, compensation, and cash discounts.
- Deduct your company’s procurement costs from your revenue: this is your gross profit!
Now calculate your company’s overheads. These include the following:
- Personnel costs, sales and marketing, and other indirect costs like contributions and subscriptions, software and vehicle costs.
- The costs of running your business: management, administration, and facility expenses.
Once you have calculated your overheads, deduct them from your gross profit. This is your operating profit! As you can see, there’s nothing very complicated about calculating your company’s operating profit.
Accounting help
Many entrepreneurs outsource their accounting because running their company already takes most of their time. It’s convenient, but can also prove quite expensive. TimeChimp has come up with a way to help. We have developed software that makes time tracking and business administration simple and transparent. You can connect this software to your company’s online accounting package too. This way, as an entrepreneur, you can easily track your time and do your own accounting. Calculating your operating result has never been easier!
Would you like to learn how easily you could manage your own business administration? Sign up for a free trial and find out yourself! Any questions? Please get in touch via +31-20-7640860 or info@timechimp.com. We would be only too happy to help.
