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What is operating income

paper30393362.jpgAs you are running a business, there are a number of new terms you need to familiarize yourself with in order to properly run your business. One of the most basic terms you need to become familiar with is operating income. What is operating income and what do you need to do in order to properly manage it to grow your business?

Operating income is simple; it is basically the income that your company generates from the sale of your product or services. The harder you work and the more sales you generate, the higher your operating income will be. The income amount you make is minus the costs you need to pay for the operating expenses and costs to product the goods.

You need to calculate the net operating income by taking your operating income and subtracting all of your taxes. This will allow you to see how much money is actually part of the business. There are several statements that you will generate as you manage your operating income. The balance sheet, financial statement, and many other records are all part of the business and they all help you to recognize your income and profit of the company.

As you manage your books, you will have an easier time understanding how much money your sales team needs to generate in order to operate a successful company. Since your sales team is responsible for closing deals with customers, you must be able to allot funds to them in order to market and gain the attention of your customers. Far too often companies don't spend enough money on marketing or they spend too much money on marketing because they aren't using the right marketing strategies to target their niche market.

One thing a number of new business owners do is try to put themselves in charge of the business books. Initially you will need to control the books to make sure everything is in order but as you start to grow and expand the business you are going to need to hire a good accountant or financial advisor to help you out. Having a quality program to use will help you manage your books easier. You want to seek out a program like Peachtree or Quickbooks in order to control your books and properly manage your operating income.

Part of understanding your operating income comes down to your ability to figure out what your operating income is and how it is different from your net income. Calculating both will help you improve the accuracy of your business books and it will allow you to gather a well-rounded picture of your business finances.

When determining your operating income you need to exclude interest and dividend income. They are not actually par of your operating income though some companies will add them in. Since you earn the money from interest, not a sale, it is not reliable as income. Leave your investments out of your operating income as well because they too can fluctuate over time and they aren't reliable, as we learned from the recent stock market problems and the recession.

To look at your operating revenue and figure out there you stand, begin with how much money you have made by selling your product. This means you need to add up the money from all of the companies you outsource to along with your online store. Write this number down and set it aside.

Then you need to calculate your operating expense. How much do you spend to manufacture the product? Once you have this number, subtract it from the first number and you have your operating income.

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