In this article, OnPoint Advisory, Gold Coast Accountants, discuss a few ways to improve profit.
There is a common thought that owning a business is like a licence to print money. I can hear many small business owners saying – “I wish”.
It’s not as easy as, for example, buying a kilogram of flour, mix in a few other ingredients, bake it for 40 minutes and sell it for $10 a cake – easy money. Right? The margins on this is huge. However, the Net Profit (amount left after paying electricity, gas, phone, rent, staff, insurance and everything else) can be modest.
There are benchmarks available for a lot of industries and professions which can be used as a guide to see how your business is performing compared to others. It is worth the exercise to compare your business to these.
So, to make all your hard work in the business worth while, you really need to exceed these benchmarks. Following are a few tips to assist you get ahead of the bunch.
Know Your Numbers
Not everyone is great with the figures of the business. Some business don’t even have accurate system to capture this information. That is all for another post.
But generally there are some key figures that you will generally need to focus on. You need to get to know and understand your Profit and Loss intimately.
An example of a business P & L benchmark report
It’s pretty clear that this business is beating the industry average in the main areas. Now these are the main areas for this example as they are the three biggest expenses.
By measuring these on a regular basis, we will know where the opportunities are and then start to formulate and implement changes to improve the Net Profit.
Start Growing Sales
The usual place that people start to look at when trying to improve profit is by cutting costs.
This will improve margins for time but sales will then start to decline as the quality of the products and services provided fall. Then with less sales, more drastic measures will happen with costs, and the business will eventually disappear.
The alternate to cutting costs to improve your percentages is to increase sales.
At his point most will jump on marketing ideas – discounts, social media, etc. While these will generally work there is no real substitute for providing a top quality consistent product or service.
No one like inefficient services. It not only affects the customers but also the staff.
So what can be done to help make your business more efficient?
– Simplify your product range.
– Improve your workflow.
– Automate as much as possible, whether it be the accounting function, stock management or staff scheduling, for examples.
– Reduce double handling of information.
Change Your Product / Service Mix
The “Mix” of the products or services you sell are NOT all equal. Some have high sale values and high margins, while others will be the opposite will low margins.
The first step is to know your products and services, and their profitability.. Once you have the information, you can determine what is the best for your business.
Think the low selling, low margin items are dragging your profit down, and are at times also the most time consuming or expensive to produce.
Once your Sales start to grow, and you have discovered and improved efficiencies within your business, you will generally find that you are inadvertently created the opportunity to increase the capacity of your business.
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