You don’t know what you don’t know!
1) Make More
2) Spend Less
It may seem obvious, but you need to look at these two areas together in their relationship rather than in isolation. Many small business owners believe that they should be chasing more sales and that will help them to improve profitability.
A number of these businesses often don’t consider their cost of goods sold and what profit they are making on the sale. Secondly, they often don’t take the time to work out how much it is costing their business just to open the doors everyday without making the sale, therefore they know not how much they need to sell in order to make a profit.
Spending less sounds like a great idea, but the old adage of “you need to spend money to make money” does hold true to an extent. As businesses grow, they have different needs and cost centres start to appear where they never used to exist. It is important to understand the additional costs that are required to grow a business before embarking on the growth journey.
Research your industry and the benchmark data that exists so that you have a sound understanding of the relationship of sales levels to the expenditure across the board in the business. The ATO issues industry benchmarks for most industries and these can be found by simply searching the internet for “ATO Small Business Benchmarks”. If you have an understanding of the cost relationships in the business type, you can easily see where there are opportunities for cost savings and if you can’t reduce your costs any further, you need to work out ways in which you can increase the level of sales and gross profits.
So much emphasis is placed on using the services of a qualified professional to install your electrical safety switches, install your plumbing, build your house, educate your children (and quite understandably). Unfortunately when it comes to small business advice or small business management, there seems to be an attitude of “she’ll be right”. Many of these micro and small businesses represent the livelihood of families and any external administration or liquidation in the supply chain can have a massive impact. Make sure that you have the right insurances in your business. Make sure that you have appropriate processes of credit control to limit your losses in the event of a disruption in your supply chain.
If you’re looking for small business advice in the Redlands, contact us to schedule an appointment with one of our consultants.