Where does the business owner cost go in the profit calculation?
Author: Russell SmithJune 30, 2015
You have two choices. We can put your cost as business owner into the costs or leave out.
There isn’t really a right or wrong answer to this but I’m going to argue that you put your cost in for the following reasons:
- It shows your TRUE profit since you are a cost to the business
- It is more accurate when you are looking at cash i.e. currently if you take out £5,000 a month from your business it shows up on your cash but not your profit
- If you are sick and can’t wait, someone has got to do what you do therefore you will have to pay someone a salary.
My only caveat on this is that if you are a one person business and have no plans of expansion then you may as well just leave the cost out because essentially your profit is your earning.
However, if you are planning to grow your business, employ team then you should bring the cost in to really see whether your business is making profits or not.