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Every Friday, I post a small insight into running Curio City and/or Blue Hills Editorial Services. My most recent posts are directly below. You can also start with the first post, or use the subject labels to the right to home in on particular topics. Feel free to comment on anything that interests you.
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Friday, March 04, 2016

Google Ate My Profit (with Bonus February Revision)

My tax return officially closed 2015 with a nice $2,465 loss (versus the $3,227 loss in the raw numbers). What's nice about a loss? Since S Corporations really are people, my friend, it gets deducted from income on my personal 1040. Profit/loss is mostly an accounting technicality -- functionally speaking, it's all about cash flow -- and at tax time I'd rather get a fat deduction than a fictional boost to income with no corresponding payout, as happened last year. 
What good are profits, apart from being a capitalist fetish? A business that consistently loses money year after year can't eke out a positive cash flow and will eventually starve to death -- unless it's a chain that can grow cash by opening new locations. Chains need to be profitable by the time they run out of expansion potential, but that's a secondary concern while they're growing aggressively. And, like losses, profits belong to the shareholders (me). If the company has enough cash to distribute its profit then I get a fat check at the end of the year and a correspondingly higher tax bill. If the payout is big enough to cover the taxes due, I break even. If Kraken Enterprises can actually give me more than enough to cover the tax, that's...well, profitable. But it's been several years since that happened. If it can't afford to pay me the profit, I much prefer the deduction.

Every year Kraken Enterprises owes $456 to the Mass. DOR and $109 to the Secretary of State, regardless of profit or loss. The tax return mainly determines Curio City's impact on our personal taxes.

So where did I lose $2,465 this year? That's easy. Sales were down by $1,200 and Cost of Goods Sold was up by $1,812, of which $1,764 was advertising. I can't blame Google for the sales decrease, but they snarfed down nearly every dollar of the COGS increase.

That's what makes this year's goal so simple: Maintain sales at last year's level (halt the slide) and restore profitability (cut advertising).

The last day and a half of February were unexpectedly strong. After last week's public hand-wringing, I figured I should show the revised monthly numbers. Beating LY by $11.80 is consistent with my goal for the year.  

Total income: +0.5%
Total COGS: +0.9%
Payroll: -21.2%
Marketing: -4.8%
Net Income (Profit) vs LY: +14.5% (+$13)
Actual Profit/Loss: -$74

Advertising was down, sales were up. That's a win. It's going to be much harder to do that in March. To stay on track, I needed week one to be a little better than average and week two to be much better than average. Barring another unexpectedly strong finish, week one will be on the low side of average, so now week two has to be downright stellar...and I'm not going to crank my advertising back into high gear.

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