So, I have this client who says he is keen on improving the gross profit in his business, because he has someone who wants to buy his business on a multiple of gross profit.
I am thinking to myself – “what you probably mean is net profit”, but I keep my thoughts to myself.
After a brief discussion, I realize that he doesn’t know what gross profit is. And there begins the journey. Suffice to say, he now get’s it, well and truly.
Earlier on, I wrote an article about understanding the numbers (ratios) in business and I firmly believe that this is one of the most critical areas of business.
Today, we are going to do a little exercise. Not for you, but for your clients. Because you already understand ratios.
Try asking your clients this question:
“If you buy something from a supplier for one dollar and sell it to your customer for two dollars, what is your percentage gross profit?”
You’ll be amazed at the replies from folks who have been in business for years.
Once they are helped by you to understand that specific key in business, it is amazing how the bottom line will improve.
In the next segment, we are going to discuss how decreasing turnover can lead to a more profitable business.
Business, besides being fun, is all about the numbers.
And the numbers need to talk to you!
So, let’s start with a little game.
Let’s say you bought an item for a dollar and sold it for two dollars.
Here is where the numbers need to start meaning something to us.
Let me ask you a question?
What is your Gross Profit percentage?
If you answered 100%, you may need some help in your business.
If you answered 50%, you’re spot on!
How do you measure your business and how do you plan for the future?
Do you measure your debtor days?
What is your break-even point?
Do you bench mark your business?
These are all important factors in our business.
For help on these and other really important indicators, give us a call or email us to make a time for us to come and have a chat.
Most of us have been in a position where we have been measured in one way or another.
And to be quite frank, most of didn’t, or still don’t like it.
But the truth of it is that we need to measure everything we do in business.
Why? So that we can manage it.
If you can’t measure it, you can’t manage it!
How then, do we go about this process with our staff?
It is all about setting SMART KPI’s for your employees.
If you’d like to know more about how we suggest implementing and managing this, please feel free to contact us for a brief discussion about some of the simple effective systems we have that can assist you to keep track of what is happening in your business.