Check it out

How much are you profit-sharing with your bank or other moneylenders? A quick look at the Profit and Loss Statement in your tax return this year will tell you. If you don’t want to wait that long, look at your 2023 tax return Go to the Profit and Loss Statement and highlight the Net Profit at or near the bottom Then go up the column to the line for Interest  or Interest paid and highlight it.

Compare the two figures

If Net Profit is four or more times the amount shown as “Interest” then you are probably going okay. If Net Profit is 10 times Interest, or more you are certainly not working for the bank. If Net Profit is about the same amount as Interest paid then you are sharing your profit equally with the bank or other moneylender. That means that if you are working a 12 hour day on your farm or in your business, you are working 6 of those hours for the bank. If interest is 3 times your Net Profit there is a more serious problem. That means you are working 9 hours a day for the bank. If interest is 10 times your Net Profit, you are working about 10 hours a day for the bank. Time to change that.

It’s good to know

It is good to know who is making the most out of your working day, because sometimes we work long and hard to make a mountain of money for others but very little for ourselves. The solution is usually to plan your finances to increase the profit you earn and decrease the interest paid to the bank. A budget that increases profit and decreases debt is the best solution.

Plan your profit in advance

I had always known that, but when I first took over running  a real estate development business and then took over a couple of hire companies, the truth came home to me in the company financial statements as well as those of my clients all over Australia. It is one thing to consult others but a quite different thing to do it yourself. Doing my own budgets and changing the business financial structure so that we were making most of the profit took a bit of time but was very rewarding. When we run a business, our focus tends to be mainly on turnover, staffing, marketing, materials and IT. Finances do not enter the daily routine except when the bills come in and we look for funds to pay them. As a friend once comment to a group discussion, “If you fail to plan, you plan to fail.” Business Financial Planning is what delivers the financial rewards for those long hard days of work, but the term Financial Planners tends to have been captured by investment advisers who don't know the first thing about running businesses Greg Bloomfield, GBAC