CFO Speak made Simple Pt.1

So this week we start a series on kind of just distilling accounting jargon into normal people words. Um, it's one of— it's a pet peeve of mine that accountants talk in these words that don't make sense unless, you know, you're an accountant, whatever. That's— we're changing that. So first thing I want to talk about is something called gross profit. And gross profit is basically the revenue that's left over after you subtract out, subtract out all of the direct costs associated with producing the service or product that you sell, right? So you have your gross revenue, you have your cost of goods sold, and then you come out with gross profit. And the reason that's an important number is because number one, it tells you if you're making money on what you're doing, on what you're selling, the product or service. That's the first thing it's going to tell you. Second, it can tell you if your pricing is too low or your costs are too high, right? Because if you, if you analyze this number a week or negative gross profit number. There's no amount of cutting operational expenses that's going to address that because the way the P&L is set up, the way this thing works is you have your revenue minus your cost of goods sold that gets you to this gross profit. And gross profit is what you have left over to pay everything else— rent, office wages, advertising, things like that, things that aren't tied directly to the product. And What happens as you analyze this number, you can start seeing things in the numbers, right? You can start seeing maybe your estimation, maybe your estimating process is off. Maybe you're using numbers that are too low relative to what the actual costs are when they come in. Sometimes you have a product mix that is throwing things off. Like if you have different products or projects, it's a good idea to kind of look at the gross profit by product or project because you can have, let's just talk in real estate, for example, you could have a specific project That is just eating costs, right? And what that does is if you combine all that stuff together into one number, this one project is pulling down the numbers for everything else. You could have maybe 5 or 6 really profitable projects, but you won't know how profitable they are because you're combining them all into one gross profit number. So sometimes looking at this by project can be a really good idea. So these are just some of the, some of the things that we want to start looking at. In terms of how to understand what your numbers are actually telling you, because this is when you start analyzing them and you start understanding what's actually happening and what these numbers actually mean, you can make better, wiser decisions going forward. So this is, like I said, this is just a brief one. The first week we're going to dive in and start tearing all these things apart. We're going to— we'll talk about ratios and KPIs and all this kind of stuff. But again, those sound Nebulous, right? But we're going to make it so you understand which ones actually relate to you and which ones actually move the needle for you. I hope this helps. If you have any questions, let's talk. Talk soon.