I thought my business was making a much better profit than we’ve...

I thought my business was making a much better profit than we’ve recently discovered it is. We have good customers, we are busy and our clients pay on time. Where am I going wrong?

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The trick with both pricing and watching the bottom line is understanding where you make your money. It sounds like a cliché, but it’s the single most important part of running – and growing – a business.
Never simply assume that you are making a tidy profit. Instead, you should do an extensive annual overview of where you’re making money and where you’re spending it. Take nothing for granted.

Through this exercise you will learn two important things.

  1. First, how much your costs are. Business owners often ignore the costs of expenses, particularly the cost of time, and as a result money is spent unwisely.
  2. Second,When the last time that you critically evaluated each cost: what is it? How much is it? Could you be spending less? Is it a necessary cost?

Without balancing the books, you end up with essentially false margins, and often managers who don’t have a strong picture of how their deliverables are impacting the business as a whole as well.

Next, you’ll determine which of your products or services are making money, and these aren’t always the same as the jobs that offer the highest margins. For example, on paper one job might offer a 60% margin, which is great, but the figure alone does not take into account upfront consulting, management hours and a range of other indirect costs.

Compare this to a job that only has a 20% margin, but no additional costs in terms of time and manpower. At the end of the day you end up with a higher profit, even though the margins are lower.

You can’t assume you know where your money comes from. Similarly, the highest paying contracts aren’t always the biggest profit jobs. As a business owner, sit down and question how well you know and understand the inner workings of your own business, and make sure you’re as informed as you can be.

Entrepreneur
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