My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.

Finance

What percentage of profits should go back into operating costs?

Guest Writer
Entrepreneur, Business Planner and Angel Investor
min read
Opinions expressed by Entrepreneur contributors are their own.

I wish it were that easy.



  • Profits are what's left over after operating costs (including direct and indirect costs, costs and expenses, cost of goods and services, fixed and variable costs -- there are lots of different breakdowns and classifications) are spent. So technically profits don't go back into operating costs.
  • Profits aren't actually money. They're an accounting concept. Cash flow is what determines money, and if you're going to be in business you have to manage cash even more than profits. You can have sales without getting paid, and you can buy things without paying (at least temporarily), and you can pay for things way before you get paid for them.
  • And you are on to something, in that you need to have money available to be able to pay your obligations in the future. Technically that's working capital, defined as current assets less current liabilities, but in the real world, it's about the same as money in the bank.
  • What people do about it is called planning your cash flow. You're watching that flow so you have enough money left over. It's also called a cash plan.
  • Happily, I just finished 10 Critical Cash Flow Rules as my most recent monthly column on entrepreneur.com, and I think it will help. You could also go to ww.bplans.com and do a search for "cash flow," and make sure you see the cash flow calculator among the business calculators there (free).

More from Entrepreneur

Learn to be a better leader and develop successful marketing and branding strategies with Dr. Patti Fletcher's help.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur