Newspaper article Coffs Coast Advocate (Coffs Harbour, Australia)

Analysing Your Business Can Be Money in the Bank

Newspaper article Coffs Coast Advocate (Coffs Harbour, Australia)

Analysing Your Business Can Be Money in the Bank

Article excerpt

THERE'S no point being in business if you're not making money and keeping some of it for yourself.

Could any of the following ideas improve your profitability or cash flow?

Analyse your costs and gross profit

Business reports often lump all revenue into one account and don't break it down into categories.

Breaking down both the revenue and the costs associated with each revenue source enables you to see clearly where you're making and losing money.

Understanding the costs of your products and services is also vital to working out your gross profit, which is the difference between revenue and costs, and is an important benchmark.

When calculating the costs of products you may need to include not just the product itself but also the costs of importing, freight, packaging, labour, warehousing and raw materials.

Costs of services may include labour, materials and out-of-pocket expenses.

If your gross profit is below expectations it may be necessary to assess how your products and services are costed and acquired.

For example, can you negotiate a better price on packaging or other components?

Review your selling price regularly

To ensure profitability, it's vital to know the true costs of your products or services and keep an eye on them in order to avoid amargin squeezea (i.e. allowing costs to rise without increasing prices and absorbing extra cost).

Market forces have an impact on pricing but it's not viable to continually absorb cost increases without applying price increases.

And it's not always necessary to increase the price of everything.

For example, you may be able to restrict your price increases only to your best-selling products.

Alternatively, consider including a note in your contracts that your pricing will increase in line with the CPI.

Regular small price increases usually incur much less resistance from customers than infrequent large increases.

Stick to a budget for your overheads

Overheads can get out of hand when there is no budgetary control.

Busy small business owners often say that they don't have time to keep an eye on what is being spent or to shop around for the best deal a but formulating a budget and sticking to it can save you plenty, and that means more profit in your pocket. …

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