No matter what business you are in, profit is critical for growth and survival.Unless you are doing a charity type of work, you are in business just to make profits, No doubt about it!
Despite its importance, many business owners make all sorts of decisions without taking its impact on profit into consideration.They stumble and slide to a declining bottom line.
I get it! Profit is everything you are after, but you just don’t want to think about it now!…At the end of the financial year, you will see it, won’t like it, take your magic wand and fix it!
Nop! It won’t work sorry…
Just so you won’t be taken by surprise, be aware of these 5profit hackers in disguise!They come to you looking very pretty and wipe away your profits:
1- Selling Too Much
Every business has a limited capacity to sell. It is defined by the number of staff employed, assets required and available space to store and display products. As long as you are selling within this capacity, you are doing well. The more you use this capacity the better for you and for your profits. Once your business reaches its limit and you still need to sell more, you will start increasing your fixed cost. Having done this, the relationship between your sales and profit changes. If you are not careful mate with these scenarios you will have impressive sales and a profit to cry on!
2- Tax Planning Strategies
Don’t we all love them?! Amazing strategies! My bread and butter! But have you ever stepped back and thought why these strategies are so good?! Well…they’re so damn good at reducing taxes because they reduce your profits!
Don’t get me wrong! You need Tax Planning! However if your aim is showing profit growth to get a bank’s loan or to sell your business for a good deal…well good luck with that! The first thing you will be asked for is your last 2 years tax returns. If you are showing losses, you won’t get the loan and you are keeping this business!>/p>
3- Doing Business Internationally
We all want to expand our business and reach out to overseas opportunities. However, once you pay or receive in a foreign currency, unless all your transactions are “immediate payment” type of deals you can accumulate foreign exchange losses you did not account for. If you believe you are exposed to foreign exchange rate fluctuation in your business transactions, seek advice on hedging.
4- Poor Stock Management
Each business needs to handle stock differently depending on their product life cycle and how fast it sells. Should you order more frequently in smaller quantities or order less frequently in bulk? Do you need more storage space or less to achieve better selling position? If you place your orders randomly, you can end up paying significant carrying cost that you could have avoided. A strong and efficient stock management should be in place to keep your fixed cost under control.Stock management issomething you should be analysing to save your financials the leaking profit pot syndrome.
5- Promotions & Discounts
Promotions and discounts in profit language means “Earning less while your costs are the same or increasing!”. This path is profit friendly only if applied when you want to clear some stock out to get rid of stock carrying cost, make space for newer and faster selling products. However, if you are doing it just to gain market share, think again and look at the profit hacked! Your variable cost will be ascending with sales while earnings will be decreasing with the reduced-price mark-up you have. Is it really worth it? I don’t know! You need to check what are you are trying to achieve here?!
In his book The 7 Habit of Highly Effective People, Steven Covey recommends to“Begin with the end in mind”. Your business profit is the end objective that needs to be in mind. For any opportunity eating out your brain right now, check how will it impact your profit before taking the next step.
Your business profit matters. Our Virtual CFO can secure a profit protection shield and keep these hackers out! Let’s talk…
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