Profit is Good and Vital for success
Business must understand and focus on Profit. Real profits enable business to remain viable ,increase employment , be sustainable and grow. Profit is not to be confused with income or by actions and behaviours of greed or large gains by impropriety . When business fails to make Profit it operates as a charity, doing work for practice and at worst becomes a job with overheads.
Profit is understood as the difference in total revenue and total costs when the product or service sells for more than the cost of production and further sells high enough to contribute to its share of the overall fixed costs of business. Here is the killer question, what profit is your business making. To know how ,first all costs need be identified . Costs are basically known as variable , fixed or combined . Variable costs are all the expenses related to production volume . When materials and resources are consumed in production , overtime above direct wages, sales commissions, deliveries , all relate to variable costs. Fixed costs are expenses that must be paid to operate regardless of getting out of bed and doing a days work. Insurance, electricity, licenses, rent, debt servicing , wages are fixed costs.
When all costs and expenses are identified a Break-even figure can be established. This is critical data that every enterprise should know .This is the first step toward planning a profit. Break-even is the amount of sales revenue required to cover all expenses, both variable and fixed weekly , monthly or annually. When used as a production, operational or sales tool Break-even will provide data for business to set about achieving sales income to cover all expenses and operate to achieve profit. Operational profit is gross profit less all expenses before tax. Net profit is profit after tax.
In the nuts and bolts of business two choices will drive profit. Increase prices or find cost savings. Increasing prices for goods sold has the best direct affect on profit however many operators lack courage or understanding for pricing reviews. Finding combinations of cost reductions will improve profit if service and quality are not compromised. Other considerations to improve profit ; Dump difficult time wasting non full- paying customers. Drop product lines that don’t create profit or distract business from being a specialist .Create systems and incentives so customers pay faster. Learn Break-even . Protect your cash-flow. Negotiate better supplier deals and terms of trade. Benchmark , develop good systems. Manage and monitor staff workflow ,replace dead wood. For free Business assistance contact Melanie at Business Grow 1800 282 208 ( an initiative of Redland City Council )
Posted by Melanie Lavelle-Maloney on 20 Jun 2010