Improving Profitability

Basic Principles of Profitability

Having a profitable business is the main reason people venture into a business.

In order to be profitable it is important for businesses to understand some basic principles:

• The necessity to set prices which will cover all associated costs, whilst ensuring that the price can compete and attract ongoing sales.

• The difference between profit and cash flow: simply speaking profit is what is left over after all costs are taken care of, while cash flow is the money coming in and out of the business.

• The importance of making enough money to pay things like overdrafts, accounts or debts and all other things that are due.

• The importance of breaking even and having a minimum level of income from sales in order to cover all associated costs.

• The break even analysis: this happens when the total sales equal total costs. This means that every sale made after this point is a profit (less the actual cost of the good sold). If the business is operating below the break even point it means it is operating at a loss.

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Reasons for Low Profitability

The profitability of your business may be affected by lack of cash flow, but other reasons for low profitability might include:

• The location of the business. This can affect the cost of the business such as the rental price of the property, transport issues and customer traffic.

• The experience and training of staff, and the correct number of your staff to service customers.

• The correct technology to run your business efficiently and effectively.

• The way the business is structured and managed.

• The sources of your funds carry different burdens, such as, being interest free or not.

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If you'd like more information on ways to improve your business profitability, complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.