Profit is all about knowing your numbers. It starts with knowing your OVERALL PROFITABILITY, your GROSS MARGIN and your OVERHEADS. It’s about knowing if each product or service is really making you money and reviewing your overall business performance on a regular basis and understanding what all those financial reports actually mean. It’s like having a dashboard in your car and knowing what each gauge means and what it does, so that you have a better journey.
Your OVERALL PROFITABILITY is about understanding all the financial parts in your business that lead to making it profitable. It’s knowing what the reports are telling you and how the reports fit together so that you are making sure your business is making all the profit it can. The more profit you make the easier it is to run and grow the business.
GROSS MARGIN is an important concept to understand. It is the difference between your material and selling costs and what is left over to operate your business. While the gross margin for every business is different, the role of the gross margin is the same … it’s job is to cover the overheads and still have a surplus afterwards which then makes up your net profit.
Your OVERHEADS are your general running costs for your business. Another terminology for them is “fixed costs”, the costs that are there regardless of how many sales you are making. Such things as rent, insurance, phone bills, certain people’s wages, and so on. As the owner of the business, you will need to have a handle on these costs, manage them and know exactly how many sales you need annually, monthly, weekly and daily to cover these costs and still make profits.
To run a successful small business you’ll need to ensure that your business runs at a profit. That way you will make much more money for all the hard work you are putting in.
Check out the tips below on how you can improve profits in your business
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