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Showing posts with label increase revenue. Show all posts
Showing posts with label increase revenue. Show all posts

Monday, November 10, 2014

IMPROVING YOUR COMPANY'S BOTTOM LINE

There are two basic methods for improving the bottom line of any business. 
  1. Lowering overheads / costs.
  2. Increasing cash flow. 
The former is a great deal easier to accomplish than the latter. Increasing cash flow means developing new business, finding new customers / clients or providing more products or services. The latter is a relatively simple exercise if you do not know how much revenue you have to generate each month to make a profit.

If you plan on reducing costs as a first stage, you need to know what your monthly "nut" is. The monthly nut is the amount of money required to operate the business month to month including every business cost down to the cost of toilet paper and excluding the business owners or partners salary or draw. That can be included in the monthly total if you wish.

In the businesses I have owned, I have always wanted to know what my monthly cost is before my draw. How much money do I need to bring in over the next 30 days to cover my company expenses.

If you don't know what your business overheads are, how will you know if your business is profitable? First step; create an Excel spreadsheet and list all your expense categories. Next step is to ensure you get receipts for every purchase whether it is paid by cash, check or credit card. With items like parking, if you just use coins, keep a small notebook in the car and write down the amount you paid the meter. If you do a lot of driving and a lot of roadside parking, you will be surprised to see how much you spend on meters. Keep in mind, this amount comes off your business taxable income. Same with meetings over a coffee. Or buying a train ticket, as examples.Get a receipt and keep a file folder for the receipts. Total them up at the end of the month. Carry out this exercise every month for the next 3 months and then do an average. 

Costs that have to be paid annually, divide over 12 months in your spread sheet. At the end of 6 months, divide by 6 and at the end of the year, divide by 12. 

Now figure out what you (and your partner or partners) need to draw each month. Add this to your monthly total and now you know exactly how much revenue you need to generate each month. From this, you can deduce if the mark-up on the products you sell  or the hourly rate you charge for your services is is sufficient. 

You do not need an MBA to carry out this business analysis.