One of your main financial reports is your Statement of Financial Performance, formerly known as the Profit and Loss Statement. The formula for profit is: PROFIT = INCOME MINUS EXPENSES

Profit only uses two of the five major accounts – Income and Expenses. The other three accounts (assets, liabilities, equity) are used in the Statement of Financial Position.

When you analyse the profit of the business, you should definitely account for wages if you have staff, but you should also account for wages if you are an owner-operator even if it is just a journal entry (paper transaction) each year. Remember to see yourself as separate from the business, so you make money in two ways: by being an employee on basic wages and being an owner making profit over and above the wages. You want it to be more than just a job. A business should make profits after paying you a fair market wage for the time you spend in it. These annual profits, expressed as a percentage of what you paid for the business (Return on Investment - ROI), should be considerably higher than what you can get from a bank on the same amount of money. More than 20% is desirable.

One formula for ROI is: PROFIT FOR ONE YEAR DIVIDED BY WHAT YOU PAID FOR THE BUSINESS

This formula assumes you paid for the business in full with your own money so you cannot count any interest expense on loans you took to buy the business. Here is an example: a business makes $30,000 profit in one year after paying its owner a wage. The business cost $100,000. Therefore, the ROI is 30%. If you borrowed money to buy the business, your return on the investment you