Tracking expenses provides another avenue to maximum profitability.
As business owners, our primary focus is getting more sales through the door. This is, after all, the most understandable way to grow your store. It is also, however, the most competitive.
Aside from a focus on sales, we often ask questions of our margin and gross profitability, and your store reporting system is able to provide you with an in-depth analysis of just how profitable each item you sell is. One area that we tend not to review regularly is operating expenses.
A typical store operating at keystone will have numbers that look similar to this:
As the numbers show, 50 percent of our sales revenue disappears in the top two lines — this is your total sales less the cost of buying those items. For the typical store, a further 40 percent will disappear below this point, leaving an average net profit of 10 percent, or $10 for every $100 of sales. Now your numbers for net profit might vary — you may be achieving 15 percent, you might only achieve 7 percent, but the principle is the same.
So a big part of our energy is concentrated above the gross profit line, but a further 40 percent of our controllable loss of profit happens below this. It’s easy to see why the focus is above this line; reporting systems like The Edge allow you to have this information at your fingertips. Your expenses previously may have only been added up monthly, or worse, when the annual financials are completed. Now, thanks to the Internet, your expenses can be more closely monitored as they happen.
There are a host of apps, many of them free, that can give you more timely information on your business’s trading expenses. Most have the added benefit of being able to sync with your bank accounts automatically, meaning no manual inputting is required. They are also intuitive and able to categorize expenses automatically for you without the need for you to update the information or analyze it manually. The more advanced offerings will enable you to input budgeted expenditure that you can compare with your actual results.
I have a friend who has been using an app called Get Pocketbook, and he has been genuinely surprised at the level of expenditure that has previously gone unnoticed. Thanks to the power of the app, he is now able to review his costs more closely and ask questions within hours of a cost being incurred.
Increasing your sales is one way to grow your business, but reducing costs can play its part in increasing your bottom line. Sales get banked, but only profit can be spent.
This article originally appeared in the November 2017 edition of INSTORE.
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