Small bussines Essay Example | Topics and Well Written Essays - 500 words

Small bussines - Essay Example As can be seen from Appendix A, the business will have losses for the first two years but beginning in the third year profitability will become positive and the following years thereafter. However this paper will report only the first three years. The higher expenses than revenues in the first two years are understandable as the business is just starting. Sales revenues will expand over time with higher sales volume into new locations as the branded products of the business become known. The decreasing expenses starting after two years would come as the business take less expensive locations. This would result to increasing gross monthly margin overtime as can be seen in Appendix B. Increasing sales is observable for the next three year period and such behavior should indicate growth of the business for the next three years. The greater the revenues the higher would be the changes for better profitability after deducting the expense (Bernstein, 1993; Droms, 1990). The profitability of the business is obvious the third year and as reflected in the positive net profit margin of 16.7% after having negative rates for the past two years because of the losses. See Appendix C. Profitability essentially means higher revenues than expenses which would mean that the business would naturally incur cost or expenses in running the business but the same should generate higher revenues in exchange of the expenses to indicate profitability of the business. The profit generated by the business is not enough to assure that business will prosper. The business must be able to pay its maturing obligations on time like the salaries of employees, payment for goods and services to supplies, regular bills for electricity, telephone and other utilities. In other words, it must have sufficient working capital or excess of current assets over its current liabilities at one point in time which can be measure also by liquidity ratios