View Full Version : net profit and margin
12-05-2011, 11:01 AM
If everything is constructed and pre paid for and "employees" are volunteers., am I right in that net profit would be 100% as well as margin would also be 100%?
12-05-2011, 11:19 AM
You are mixing terms.
Net profit is expressed as a number not as a percentage. It is of course net sales (sales minus returns/refunds) minus net expenses. Whether you prepaid every conceivable item, those items are still expenses incurred in that fiscal year. Additionally, there are post event costs which need to be part of the bottom line.
Net profit margin is a ratio most typically indicated in a percentage. It is net profits divided by sales. Used to see how productive you really are. How much of your sales are profit? This is the goal to expand the percentage of profit in each dollar taken in.
In practice, you cannot possibly have every expense prepaid in a previous year so all of your sales going to profit could not happen and as a result, your margin could never get to 100%
12-05-2011, 11:30 AM
So if I break even net profit would be $0 and margin would be 0%?
12-05-2011, 01:07 PM
I am far from being the right guy to answer this and we are speaking in some very general terms. I guess in the simplest terms, the answer would be yes. But there are really more proper and complex ways of looking at it which better focus on the information a person hopes to gain from this.
Lets assume you are looking at a long term business and are discussing actual incomes and expenses and not single year tax issues. You have different kinds of expenses. You have some initial start up costs that may be paid for though start up investment cash or maybe a loan (personal or bank) that requires regular payments. So these may or may not become ongoing operational overhead. You have fixed and variable expenses. A fixed expense is like the monthly rent or insurance. These are not changing if 10 or 1000 customers come. (yes, I know attendance will have an effect on insurance, but we will ignore that for simplicity) Other things will vary depending on the size of the business, like how much make-up is used varies on the number of actors, and how many nights you operate. You also have fixed expenses which can affect the sales, primarily advertising. Part of the goal of looking at profit margin is to measure the effectiveness of these expenses.
So, to truly look at how you operate, we can ignore the initial capitol outlay and focus on operational costs. The fixed costs will give you a number that is your starting number to cover. As you add sales, a portion of that number will begin to cover that nut, the other part will cover the variable operational costs and sales acquisition costs. When these are equal, you are at an operational break even. At some point of sales the income will surpass expenses and you are into profit. That is your return on investment for the start up capitol outlay. What happens is that this starts to level off at some point. You can have more and more customers but the expenses and work load increases and you really donít see much gain. That is what is happening when you see some of the big players on these boards talk about getting bigger and working harder, but not making more money, or certainly not making a significant increase that offsets the additional effort and risk. They are reaching the limits of that business model. This concept applies right down to us small guys. There is a limit to what can be extracted in any given circumstance. After that, you are wasting time or money.
So after all that rambling (Iím on the path to becoming Jim, Iím afraid) there must be an answer for you in there somewhere. In an isolated, one year scenario, break even is not a $0 balance between what you spent to build and run the haunt versus what you took in. At the end, I would assume you would still have assets, lights, fog machine, props, and panels. Those have value. If you were to be at dollars out equals dollars in, then the resale value of that stuff is your profit. So a break even is really the build and operation expenses balanced against sales and the residual asset value. Donít assign any value to the business as an entity(the name and rep), it is worth nothing. Netherworld, yes; Joe Blow Haunt In A Box, no.
Anyway, probably more than you wanted to hear.
12-05-2011, 02:19 PM
"So after all that rambling (Iím on the path to becoming Jim, Iím afraid)"
^bahahahaha, his posts are the best!!
12-06-2011, 09:00 PM
You guys are using terms you might catch on Money talk tv but there are quite a few differences to running events than having a 2 billion dollar corporation trading on the new your stock exchange.
If you make a profit you pay taxes on that, so small business reinvests as much as possible and there is always some legitimate expense to spend money on to increase the value to the customer (not some asset value)
Oh asset value, ya wanna pay inventory tax to the state you are in huh? Everything you build, conjure up, by used or new is instantly worth about 25 cents on the dollar and the reason you bought it was to entertain customers, not to have a resale value. Now if you go 20 years and become an icon in your region, you stuff might have some sentimantal value that people would be willing to buy things just to have them. You can't count on that happening, that everyting you put in there doesn't rot away, get destroyed or become obsolete technology.
If you make some money you start paying people and you are instantly out of money again. Then the rude awakening is everyone I have run into in the beginning years gets disappointed that they and everyone they know didn't make $50,000 per year right out of the box. There again, the least you need to live on the less taxes you pay at a personal level and the more you can put back into your show.
Even if you own and have paid for the property it might not be appreciating in value and actually cost lots of money to turn it back into saleable realestate and again will always have improvements accrue more and more property taxes.
There might be precentages that you can use as a guideline to tell if you are over spending on some portion of the overall endevour but generally words like it isn't in the budget, might sound like it came from someone sitting on stacks of cash that they are responcibly doling out for some goal but usually they are terms used by and excuse contrived by someone who has no money to budget to begin with, never did and probably won't because they think like a weasel.
Your job is to spend everything you can to give the best show, not pay all the money in taxes to the government. They (the government) WANT you to do that! They want you to employ people, give people money for services and buy materials used or new. That is what the economy IS. It isn't the dynamic study of making margin calls on multi hundred dollar companies.
Things are only worth what someone is willing to pay.
Chance are if you are using credit, that 20 to 30% they want on their money was probably what you were planning to feed yourself with so you don't want to do that unless in moderation.
What has happened in the economy in general as reported by the media, everything was worth lots of money and now it is only worth what it was worth in 1980. Anyone left holding the bag now only has as much s they did when they started way back when. That's if you use terms or count on some knd of value as a standard. What it really means is stuff is only worth what it was worth. After so many economic system failures it will only be worth what it is worth for decades.
Say you only wish to reinvest 30%. Good for you that you made so much money to have such a defining decision to make. In a business you are your OWN stock market and investing it all is how you compond your investment and your margin call is how many people bought tickets and supported what you are doing. When they come back in 3 years the show better show that their $15 was exceptionally well spent or they won't be back in year 6.
If you only bought another $300 worth of stuff and bought yourself a corvette, the community will not be happy with you and you will be spending what ever you stashed away moving everything to another town. Only they won't warm up to you looking like a con man driving a corvette.
12-06-2011, 09:15 PM
Maybe a decade or 15 years down the line you can get a feel for what the specific expendatures are that keeps the ball rolling and even then it won't be realistic. YOu may still find yourself just making a living, just paying your bills and at the end of the season having the exact amount of money to put back into it. No profit. Welcome to the machine.
There is no limit to how much you can expand, how much money you can spend. There is only cash flow. How would Yoda say this crap?
Hmmm, cash flow you have, hmmm That is all you have.
12-06-2011, 09:49 PM
Mind you young Jedis, there is nothing negative in what I have said in any way. The true riches in owning and operating a haunt come from all the people you were able to entertain. To all those that found something fun to do seasonally with their lives helping entertain others. To building some kind of legacy about a haunt in history, to helping others do the same thing with perhaps realistic expectations. To have satisfaction is seeing your visions become a reality and perhaps having a never ending learing scale to work from.
If you accumulate profit, the government will take it and decide what they will do with it in some far off place or you as a business owner can make it have the highest possible effect directly in your own community. That is the game.
What other thing are you going to do with your money beside invest in your self. Where are you going to put your money into some bank or gold or the stock market that one day it might not be there anymore or locked up while a bankruptsy goes to court because everyone's money is gone. And you should keep paying your service charges and handling fees to keep up your account or it is history? Or you can invest in yourself, your people, your community.
12-06-2011, 09:59 PM
Hmmmm, profit you seek...Hmmmm...Only the flow of cash there is.
12-06-2011, 11:21 PM
It's Winter= time off from nightly house tours.. so I'm involved building, thinking of new stuff I can make without freezing to death or spray painting indoors, ex cetra. And I mentally get a "Buzz-On" when I have multiple projects all compeating with my attention, making numerous choices as to how to assemble in what order for ease of assembly, what tools and processes to engage to accomplish such things....
The first order of this business is to Not Spend money unnecesarily but to seek usable boards, parts, pieces I already own, someplace. The bottom line is keeping on to be able to keep keeping on doing this, which means normal bills must be paid first to keep the boogeyman at bay.
That whole creative process of making "due" with pretty much what you have really does bare "Fruit" often times. Sort of like waiting til the term paper is due tomorrow and flying into high gear (and it's associated rush) to accomplish such works.
Odd items, sometimes unidentifiable to the average person, scraps, pieces , parts and basic pieces of wood and hardware all seem to almost come together by osmosis.. and Now You are Really Doing It!
It's a "Smash-Flow" of energy, ideas popping up and some fun things being assembled, produced! (Sort of similair to "Robot-Chicken".)
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