The Power of the Percentage!

As you will begin to realise as we proceed down this road together, I advocate getting your accounting in order not because I want to see history but because I want to use the data to project the future, and thereby help us manage the business.

Let us use the numbers we have developed in the last few posts to create an example. Let us say our business was just breaking even at $40,000 sales per month, GM% is 25% and overheads $10,000. No point in that continuing, so we say to ourselves, "Gotta make $2,500 a month profit!". We saw that one way to do this was to increase sales by $10,000 per month. But there are two other ways as well. The first is to cut overheads by $2,500. (Usually it is possible to trim overhead by some amount.)

The third and final way to achieve the desired profit is to increase gross margin. If we get the gross margin up to 31.25% with sales remaining at $40,000 per month we achieve the same result, achieving our $2,500 profit.

The net result of all this is that we have quantified what possible actions we could use to create the change we need. Now we use our experience to select between the options.

So next time you talk to your accounting staff don't ask "How did we do last month?" Ask instead, "What do we have to do to do better next month?" Do this and you start to turn accounting into a resource not an expense.