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Know Your Numbers – Drilling Down on Your Margins

We all like to make those little savings, like getting a great flight deal.  We look around, we do our research. The same should also apply to your business. Gains can always be made at the margins.  Those small incremental gains that, over a month or a year can have a significant impact on your bottom line.  The profit you make from a single project, a single product or service you sell or from a geographic area or 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.

Here are some ideas to help you measure your margins:

  1. Make sure you’re using real time, up to date data – ideally you need to be either using a cloud-based cashbook system with daily data feeds from your bank.
  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 here could be on-line sales vs shop sales by the way.
  3. Make sure you capture the 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 either by using an inventory or time recording system. If you’re selling a mixture of labour and materials then make sure you are correctly capturing both the labour and the material costs correctly.
  5. Compare the actual results you are getting with your month by month budget. Do this on at least 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 (you could meet on-line) 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 so are familiar with best practice; and what doesn’t work!!

The first step to  improving your results, is understanding exactly where you are right now – warts and all.

If you need a co-pilot to help navigate the margins for you, we’re right here just give us a call.

 You can’t manage what you can’t measure
– Peter Drucker

Co-Pilot Accounting Cambridge