Business by design Part 5: The more you sell the more you make…not always!
Clear Vision • March 2, 2017
The ASIC publication about factors that influence the success or failure of a business that I’ve been referring to in recent articles makes particular mention of trading losses. 34% of businesses cite this as a reason for why they didn’t succeed.
Now you might be thinking, well that’s pretty obvious, if you don’t make a profit you won’t survive…but really it raises a number of issues about why was the business not trading profitably?
The first of these I’d like to address is profit margin. Or understanding how much profit is actually involved in each product or service you sell.
Getting a handle on this is critical for your business. Here are some quick tips and ideas for you to think about.
- Don’t assume the more you sell the more you make. Many businesses fail to appreciate that some of their products or services cost more to produce or supply as than they return in sales.
- Understand how much profit you make for each product or service. With the help of a good accountant you should be able to work through the input costs and overall share of business costs that each product or service requires. Compare this to the sales price of the product or service and you might be surprised
- Compare your products and services to each other and you might find that selling 100 of a particular profit won’t do nearly as much as selling 10 of something else. You can then use this information to inform how your marketing and sales time and money is spent.
- If a core product or service doesn’t turn much of a profit but is still critical to your overall business volume its time to look at input costs.
- What costs are involved in each of your products and services? Can suppliers be renegotiated for better pricing? Are your processes too inefficient? Could the same work be done by less people or less expensive staff? Is the creation of the product or service overly complicated? Can you sell a similar product or service for a similar price but for a lower input cost?
These are just a few ideas that you might consider to improve your trading profit or loss. We invite you to contact Clear Vision for more ideas that are specific to your business. You might also wish to consider our recently CFONow.com.au service and the incredible benefits your business can enjoy when you harness the power of a Chief Financial Officer without the overheads of a full-time employee.
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As we step into the final week of autumn and feel winter’s chill approaching, it’s a natural time for reflection—and that includes taking stock of your financial and tax situation. The end of the year is closer than it seems, and a bit of preparation now can make a significant difference come tax season. Here are a few things to consider as the leaves fall: 1. Review Your Income and Deductions This is a good moment to check your income year-to-date and consider whether there are any deductions you can still take advantage of. Charitable donations or investment losses might help reduce your taxable income before year-end. 2. Maximise Super Concessional Contributions If you haven’t yet maxed out your superannuation concessional contributions, there’s still time. Remember unused cap amounts carry forward for 5 years and the 2019-20 unused cap amount will expire 30 June 2025. These contributions not only help secure your future but can also offer tax benefits now. 3. Organise Your Records Autumn’s slower pace is perfect for pulling together receipts, invoices, and financial documents. Getting organised now means less stress later when tax season begins in earnest. 4. Consider Tax-Loss Harvesting If you’ve had investments that underperformed, selling them before the end of the year to offset gains can be a strategic move. Consult with us today to see if this makes sense for you. 5. Plan Ahead Winter may bring holidays and downtime, but it's also a good window to consult with a tax professional. A quick meeting before year-end can reveal savings opportunities or help avoid surprises when you file. So, as the days grow shorter and frost begins to settle in, use this time to bring clarity and warmth to your finances.
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