As a publisher, it’s important to that you have a complete understanding of the numbers that drive your business. One of the most important financial documents to understand is the income statement.
The income statement, sometimes called the profit and loss statement, is the financial Scorecard of a business. It shows you money coming in (revenue), money going out (expenses), and what’s left over (profit). It’s very straight forward but at times misunderstood because the terminology is referred to by different names.
To simplify things I’ve reduced the income statement to the four most important numbers and explained the definition of each. If you understand these numbers, review them every month and share them with your team you will have your finger on the financial pulse of your business.
Four Most Important Numbers on the Income Statement:
Revenue: Money coming in the door.
Margin: Margin is calculated by subtracting Revenue from Cost of Goods Sold (COGS). COGS are the direct expenses associated with producing a product. In the publishing business your product is your magazine so these expenses include printing, graphic design, editorial, photography, etc.
Profit: Profit is equal to Margin minus Fixed Expense. Fixed Expenses are the expenses that you have each month whether you publish a magazine or not. These include rent, utilities, salaries, etc. Profit is the money left over after all expenses are paid.
Cash: Cash is the Money collected. How is Cash different from profit? Let’s say you sell an ad for $500 but the client does not pay. On paper is may show a Profit but the reality is that you don’t have the money in the bank. Profit on paper is nice but money in the bank is the most important thing.
REVENUE – COST OF GOODS SOLD = MARGIN
MARGIN – FIXED COST = PROFIT
CASH = MONEY COLLECTED
REVENUE: aka Sales.
Money coming in.
COST OF GOODS SOLD: aka Direct Expense, Variable Expense, or COGS.
These are the expenses directly associated with producing your product.
MARGIN: aka Gross Margin or Gross Profit.
Calculated by subtracting Revenue from your COGS.
FIXED COST: aka In-Direct Expense.
These are the expenses you have each month that do not fluctuate with sales or production.
PROFIT: aka Net Profit or Income.
This is the money left over after you pay all of your Cost Of Good Sold and Fixed Expenses.