PJT Accountants
Sales are down but profits go up!
16 June 10 In uncertain times or slowing sales, you need to move quickly to protect your bottom line. Ignoring or delaying a decision to ‘cut’ the fat from your business will significantly impact your business’ performance, cashflow and future survival. Examining and restructuring your cost will ensure your business not only survives but thrives when sales slow down.Consider these 3 simple cost saving strategies:
1. Income > Expenses
Do you know your business’s break even point? Break Even Analysis identifies the minimum sales you require to cover your ‘necessary’ business expenses. It requires you to calculate your total fixed costs (i.e. rent, interest etc), gross profit margin and then you ‘sensitise’ your sales to provide a break even result – or $0 profit.
Once you have determined your break even point, be realistic in assessing your likely sales and recalculate your results as your gross profit margin fluctuates.
Successful businesses have their cost structure weighted to variable costs (i.e. low fixed costs). Activity Based Costing is a process that enables you to analyse and change your cost structure. For example, using contractors to provide non-core services to your business or outsourcing the distribution of your products (i.e. freight) are examples of variable cost strategies.
3. Identify your business strength and weaknesses
Changing your sales mix by focusing on high margin product or service lines and offering incentive rewards to staff are examples of strategies to increase gross profit and reduce wages costs as a percentage of sales. Your Accountant or Business Adviser is best positioned to provide you with professional advice in relation to this. Seek their advice and ask their assistance to implement these strategies.
If you would like some further information, please do not hesitate to contact me on 07 5413 9300.
Melanie Jacobson B.Bus CA