Knowing you numbers - drilling down on your margins
Gains can always be made at the margins. These small incremental gains over a month or a year can have a significant impact on your bottom line. This could be additional profit you make from a single project, a single product or service, a particular geographic area, or a certain type of customer.
Drilling down into your sales and margins gives you great insight into which parts of your business are performing well and which ones need improvement.
Some ideas to help you measure your margins:
1. Use real time and up to date data.
Ideally, use a cloud-based accounting system with daily data feeds from your bank. Here at PKF we encourage our clients to use Xero.
2. Determine which ways you want to ‘dissect’ your sales.
E.g. by product or service line, by groups of products, by salespeople, or by region. A region could be defined as online sales versus shop sales.
3. Capture sales by these categories at the time of sale or invoicing.
Adjust your account codes accordingly or use reference fields.
4. Capture the direct costs of these sales by using an inventory or time recording system.
If you’re selling a mixture of labour and materials, make sure you correctly capture both the labour and the material costs.
5. Compare the actual results you are getting with your month by month budget.
Do this at least on a monthly basis.
6. Compare your results with industry expectations.
Consider accessing benchmark statistics from your industry or, better still, get together regularly with similar types of businesses to compare your results. These could be identical non-competing businesses in different locations (meet online) or industry-related businesses in your own region.
7. Seek feedback from us as to how you can improve your reporting of your margins.
We come into contact with many businesses like yours and are familiar with best practice, as well as what doesn’t work!
The first step in improving your results is understanding exactly where you are right now – warts and all. Call us on 03 474 0475 and speak to one of our business advisers about how to drill down into your margins.