Boosting Profit For Trade Businesses
Boosting profit should be the main aim of a business owner. Whether you have a trade business or you operate in another industry, you should have the goal of boosting the profit of your business. In too many businesses, especially with turnover between 1 and 5 million, the net profit margin is far too low or even non-existent. The main trap the owner or the entrepreneur falls into, is to think that growing revenue and boosting sales will help them get to this magic profit target. In actual fact, usually this method of approach does not work and only compounds to the problems of an unprofitable business.
To achieve a profit, first of all you need to make sure you are accounting for all of your expenses at a true and fair value – this includes the owners’ salary. Too many times while forecasting for trade business owners, we have seen owners tell us they have a net profit of 10%, however, after including their salary as an expense, the business is just breaking even. This is a very dangerous position. As a business owner, if you are only achieving break-even, you are probably 1 bad month away from being insolvent.
We have found that business owners experience problems achieving a healthy profit figure because they are paying too much in salaries and are not measuring productivity of staff. They are not pricing jobs correctly and including overhead expenses in the calculations for quotes or they have tried to grow too fast without actually achieving a profit. To get to a healthy profit margin you need to look at your systems and processes.
When completing your forecast for the year, in order to achieve a stable profit figure, some of the changes you should consider making are:
- Complete a forecast and set targets for each quarter
- Review the forecast with an adviser (accountant, coach, finance officer, etc…) and compare forecasted figures to actuals
- Cap expenses (particularly salaries)
- Measure profitability from each job
- Invest in accounting systems if they are not able to provide you with the information required
At Tradies Accountant, we are working on ways to help take the trade business owners to a healthy net profit target through increased analysis of their forecasts and guidance on where they might need help in their business. We want to help business owners make it to a revenue turnover of $5 million while actually being profitable and having cash in the bank.
Contact us for any enquiries.