Is your business positive?
Many small business owners understand that their numbers are important and that they should be looking at them. However, many small business owners are confused by what they should look at and what the numbers actually mean in a financial report at the end of each month.
This newsletter will concentrate on one of the most important financial reports in your business, the profit & loss report. This report is key to running a business as it reveals the business’s bottom line, is your business creating a profit or a loss. Prior to getting to the bottom line, there are certain areas that as a small business owner would be crucial for you to understand. These areas consist of understanding profit margin, pricing your product/service, costs of creating your profit/service and ways to increase margins in your business.
Profit margins are essential to any business, it tells a business owner how much income a business makes in relation to sales made over costs incurred. This margin is one of the key indicators of how well a business is performing financially. Understanding this margin and how it is calculated would give any business owner a key reference to keep track of in their business.
Pricing your product/service is key in any business and can be an entire newsletter all by itself. For the sake of brevity and staying on this newsletter topic, there a few things to keep in mind when pricing your product. First, knowing what it cost to make your product or provide your service is the starting point when it relates to pricing. You want to make sure that you are at least pricing high enough to cover the costs. Secondly, take the time to understand all the costs involved in your product/service. Lastly, market research that includes your competition will help in what your pricing strategy should.
Finally, there are certain ways to increase profit margins in your business which would have a direct effect on income and cash flow for a small business. Both crucial in running a small business. Increasing sales and decreasing costs are two key ways to increase a business’s profit margin. Each of these areas lend themselves to numerous directions that an owner can possibly take with their business. An accountant can certainly help small business owners with any of these areas as well as create a plan so that there will be consistent positive growth into the future of the business.