Periodically, I try to share some business education information that might help in operating and growing your home business. Many of us come to our own home businesses without much of an understanding of business basics at all—just a lot of drive, determination and passion. Not to mention a genuine interest in having our own small business. One thing that may be helpful to understand is the difference between a “profit center” and a “cost center” as it relates to a small business.
In simplistic terms, a “profit center” is an element of your business that generates revenue and profit. For example, as the sole proprietor who is working to generate business, provided services, or produce and sell products—you would definitely be considered a profit center in your home business. You may even be considered THE profit center of your business. In a larger business, positions and departments that generate income and bring in business are considered profit centers.
A “cost center” is an element of a business that is an expense, but does not bring in profit or revenue. This can be a position or department that has a function that benefits the business (a receptionist or human resources manager, for example) but does not actually bring in new business, make sales or generate income. These are often the first positions or departments or operations that get cut if there is a downturn or a need to trim a budget. In your own home business, you can evaluate the “cost centers” to see if their existence is justified, or if they are costing you more money than they are worth.
Keeping an eye on the elements and activities of your home business and making sure that you don’t have too many cost centers and too few profit centers can help you keep your business moving forward and in the black.
See Also: Keep an Eye on Financial Risk
Knowing the Rules Doesn’t Mean You Have to Follow Every One
Do Turn-over Rates Affect Your Home Business?