Sales Should Mean Profits
Sales or income do not mean profits. Therefore profit is what counts.
Income and sales
Sales or income without profits has no value. So my first month back in 1985 had sales of $67,000 and my profits almost $6,700. Therefore a 10% net profit. In addition, my second month had sales of $87,000, with profits of $8,600.
Today I have sales of $100,000 per month with net profits of around $37,000. Therefore with similar sales, I have 4X more net profit. So sales = Income – total expenses = net profit. So sales or income does not always interpret into net profit.
Income and losses.
So people have income and lose money every month. Therefore over time, they go broke. So how are they able to stay afloat losing money every month? Credit cards.
Debt & Equity cover losses
In other words, I can lose money, have sales or income, and stay in business using debt. However, this eventually comes to an end. I can not continue using debt to cover losses or not enough net profit.
Amazon stayed in business for years living off debt and investor equity. So back in 1994, Jeff Bezos sold 1% of Amazon for $50,000 to 14 investors for a total of $700,000. Therefore today, that total investment is worth about $10 billion dollars.
Up until 1999, Bezos Amazon was losing 5 million dollars on 15 million in sales or income. However, he did turn a modest profit by the end of 2001. So this example proves that sales can equal losses for a long time. However not for you and me.
We are not Bezos Amazon
My above example illustrates nonreality. So only in the stock market world does this exist. Therefore you and I need to make profits not just sales or income.
How to make a profit
I make profits by buying or investing in undervalued assets or companies. So this means buying assets below the market value. Therefore when I sell the asset I have a built-in profit margin. So I can say I created net profit when I purchased the asset or company.
In other words, I realize my net profit when I sell and create a profit when I buy it.
Most companies make very little profit
I know companies I compete with that sell 10X more than me but make less profit. In addition, the more they sell, the more they need people to pack and ship, the higher their expenses, the less net profit they make. Therefore sales do not interpret net profits.
So when you see someone on YouTube or blogs talking about income (sales), then they can be losing money. Therefore look for people that talk net profit, not sales as income.
What’s the point?
My point is it’s important to make a distinction between sales, income, profit, pretax profit, and net profit. Therefore if you don’t make the distinction you will lose money.
Firstly, sales = income. That deposited into your bank.
Secondly, income can be from a job, not necessarily sales from a business.
Thirdly, Income is not profit. Profit is what you keep after all expenses are deducted.
Fourthly, Pretax profit is before taxes are taken. You have state and Federal Taxes. Local too.
Moreover, after-tax net profit is what you have left to reinvest in income-producing assets. So you don’t have to work until you die.
Warren Buffet says
“If you don’t find a way to make money while you sleep, you will work until you die.” Warren Buffet
This sums up everything I have to say in one simple Buffet sentence. So my goal is to not work and write these blogs instead.
This post is probably the most important to understand investing, creating wealth, understanding the liars, and knowing the correct terms so you better understand how this investment game is played.
However, if you are not an investor or business owner, you may want to consider what Mr. Buffet has to say about working until you die and see this as an opportunity to begin a new path forward.
The good news is, it’s never too late to begin and wealth accumulates faster than you think.