Profitability – make more money from every sale
Every business wants to make more profit so a key focus must be on the profitability of products and services and on the importance of increasing business profitability over time.
By improving gross margins, each sale you make generates more profit and puts more cash in the bank.
Which means you can earn more or keep money in your business to invest in profitable growth for the future.
How does a business improve profitability?
Profit = sales – costs.
It’s simple. There are only two levers you can pull to improve profitability:
- Sales revenue – you can change the amount that you sell and the prices you charge
- Costs – you can use less, pay less for what you do use and get more out of every £ you spend
You know your own business very well and can see ways of achieving changes to your sales and costs. You can also see some risks.
For example, if you increase your prices you may lose some customers. Executed sensibly, most businesses find a price increase leads to higher profitability.
Equally, marketing can feel like pushing on a piece of string! But effective marketing activity and spend can increase sales by a far greater amount than you invest in marketing.
How to measure profitability in your business
How good is your accounting and management information?
You need accurate, up to date financial information in order to measure and improve profitability.
Quite what information you need depends on your business and it might not be limited to finance.
A high street retailer might want to know sales by product each day, or even each hour.
If the retailer is online, they will also want information about website traffic and reliability of their courier service.
Whereas a lawyer might want to know billable hours as the month goes by to get a sense of how much to invoice at the end of the month.
Whatever you need to measure, you need to measure it accurately and consistently and draw it all together to improve profitability.
How can an Accountant help you improve profitability?
The first step is to make sure your bookkeeping and accounting is in good shape.
Good bookkeeping has never been easier because cloud accounting services and the ecosystem of apps that surround them speed up data capture and your financial results are at your fingertips.
The technology is there but it must be used properly and measure your business activity appropriately.
For example, travel costs are usually an overhead. However, if you recharge your travel costs to your clients then some travel costs are a cost of sale. Incorrectly allocating travel costs as an overhead will give you a very different, misleading, view of profitability.
We help clients with the selection of the right technology, and we make sure the bookkeeping is done correctly so that financial information is accurate, useful and sent to the people who need it to measure performance and make decisions.
And because some other accountants can cloak themselves in jargon, we make sure our users of financial information understand it in order to use it effectively.
Free two-hour profitability review
We’re happy to meet and review your financial information and discuss ways in which you can address profitability, including:
- suggesting efficient technical solutions to reduce cost.
- reviewing the need to increase the percentage of timely bill payments.
- options to reduce accounting inaccuracies.
- ideas to create systems that improve your bottom line.
Please call Michael Austin on 020 7125 0270 to get started.
And finally, if you have a commute coming up…
40-minute Profitability webinar
We recorded a 40 minute webinar entitled “How to Improve the Profitability of Your Business” which might be a good starting point to learn more.
About Blue Dot Consulting
Blue Dot Consulting are South West London Chartered Accountants helping businesses improve profitability by efficient, effective bookkeeping and choosing the right accounting technology.