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Profit Improvement Made Easy

Nick Roberts
 

Despite the recession some businesses are still very profitable. So why are some businesses profitable and others loss-making? What can you do to make sure you're in the right category?
  1. Monitor your profitability no less than quarterly. No, this doesn't mean getting your accountants to prepare costly interim financials, just get some cheap but effective accounting software which works on an "accruals" basis and copes with things like inventory. Failing that, if you're a smaller business ask your accountant for bi-monthly profitability reports when they prepare your GST returns
  2. Know your current, true break-even point at all times, which takes into account your current gross profit margin and all your outgoings including drawings, tax & ACC.
  3. Ensure all your prices are set correctly and take account of all your costs. In addition, work out your gross margins on every product or service in your business. Nowadays this is easy with good but low-cost software.
  4. Keep track of and know all your costs. Set a budget and check all your supplier invoices and expenses personally.
  5. Keep your salary and personal expenses to a reasonable level. Pay your personal bills from your personal bank account not from your business bank account.
  6. Spend more time working to boost your income than reducing your costs. Short of changing the whole way you operate often there is little you can achieve on cost-savings but on the income side the possibilities are endless.
  7. Monitor regularly the things which are critical to the success of your business e.g. prospect conversion rates, labour productivity, average $ sale, average job size etc.
There's no magic silver bullet to make one business profitable over another, it's just a matter of common-sense and getting good systems in place. Getting into the habit of monitoring your profitability is the first, most vital step to improving your profitability.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use our form. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.

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