If there was just one thing you could do in your business that would instantly increase profit, would you do it? Of course you would. The sad fact is, however, that very few business owners have been told about this step.
If you have a business that sells just more than one product or service, this step will provide information that may surprise you. The key is to split apart the financial data so that you can see the figures for revenue and associated costs for every product or service.
Consider the following example. A friend of mine ran a business with his brother in the IT industry. They did computer support/tech work and they also built websites and did graphic design work. They effectively had three major service lines. The brothers were doing well, making good profits but even though they had increased their revenue significantly, they hadn’t increased their profit and they were frustrated with their results.
After arguing for some time, one of the brothers decided to change their accounting system so that they could record the revenue from each of the three service lines separately and at the same time allocate the costs against the three service lines too. After a few months of entering data in this way, they reviewed the profit position for each of the service lines.
Interesting results emerged. One of the areas was making really good profit margins. One of the areas was making a reasonable profit, whilst the third area was losing them money to the tune of $ 15,000 per month. At that moment, the brothers looked at each other and thought about just how much money they had lost over the seven years they had been in business.
Armed with this information, the brothers were able to delve further into the loss making work with a view to identifying why the losses were incurring and then how they could reduce the costs, improve productivity and whether there was any scope for increasing their price to customers for the service.
Not only that, but it helped them to understand that to grow the business, they needed to focus their marketing activity on the area that was giving them the good profit margins and get more of that type of work into the business.
Are you getting this level of information in your business? If not, then find a way to start recording your financial information in a manner that will allow you to get this information so that you can identify whether your business is losing money. Once you have the data, you can make an informed decision about what to do in the future.