6 Mistakes you can avoid to increase your profit?
Starting a business is an exciting time, and it’s understandable that you want to introduce your new company to the world and believe that everyone young or old, male or female, urban or rural, you name it need what you’re selling. Think about some of the country’s biggest companies. Thought they are widely successful and have very broad customer bases, even they can’t claim “everyone” as their target market.
- Sale are Not profit:
The biggest beginner is assuming that sale are profit. People new to business can easily confuse sale with profit, but their is a very clear distinction between them. As they saying goes, ‘sale are vanity, profit are sanity’. Let’s assume sale are going well in your new business. You’re in happy mood because you have all that profit coming in. Except is may not be profit. Your profit is actual what is left after All your costs has been deducted from sale. If you haven’t calculating your selling prices correctly, the danger is that your business might seem that to be thriving when it is, infect operating at a loss, or at very little profit. The main point is here is: Never set a selling price or tender a price for a
job until you know All the costs involved. There are two types of business costs. First are variable costs. These are direct costs of production that vary with sales levels. They include the cost of raw materials or stock and the direct employee costs of producing goods or supplying a service. Second all the businesses have fix costs, also called overheads. However much or little you sell each month, you must pay relatively fixed costs such as rent or mortgage, phone and Internet, utilities, vehicles, loans and leases, and other office costs. You need to include these costs, or at least a percentage of them, in your pricing. When you start a business, it’s important to get your pricing and job costing checked by an experienced accountant or financial adviser, because they may well identify costs that you have overlooked.2.Markup is NOT profit: Once you calculated al yours costs, you must include your profit margins you need to sustain the business. This leads on the second profit mistake. Many business owners assume that if they intend to make say a 20% profit, they can simply add 20% on the cost-price of a product on service. So if the item or service cost them $100, they ad on 20%, making the selling price $120. They assume this will give them their desired profit margin 20% Wrong. Mark up is not a profit margin. In the case, the owner may assume the business is making a 20% profit, but the profit on the actual sales price is only 16.67%. You can use this formula to work out profit margin. Price – Cost Price *100 In this example, 120_100 is 20, divided by 120 and multiplied by 100, resulting is an actual profit margin of 16.67%. So while the owner assumes the business is making 20% on all the sales, the selling price is actually giving away 3.3% of the expected profit. The gap between markup and profit margin keeps widening as required margins get higher. If you want to make a 50% profit margin on an item that costs $100, the correct selling price would have to be $200, since 50% of 200$ is $100. If you have instead simply added a 50% mark up to the cost price of $100, the selling price would have been set at $150. Apply the formula above, and the profit margin work out to be only 33.3%. The mistake of using mark up to achieve your desired “profit margin” would have meant giving away nearly 17% of profit margin. You can see how dangerous this mistake can be a business. The point is to check your margin are really what you want them to be. Decide what minimum acceptable profit margin you need to sustain your business, and then get help is necessary from your financial adviser to check that your selling price with actually deliver the required profit margin. 3.Profit is NOT your salary: Many new business owners assume any surplus profit is what they should take out of the business as their salary. But profit has other purposes than providing a salary. Your salary should instead be included as part of business costs, so profit more accurately becomes any surplus money left over after you have taken your salary and paid all other costs. All businesses need profit and its purpose is to sustain and grow your business. Of course, it may take some time for a start-up business to reach the break-even point and start making a profit. During this time you may not be to draw much money from the business. Being thrifty during this period is a common necessity for start-up owners. But in the medium to long-term, you need to aim for a salary that is at least in line with what you could earn elsewhere as an employee and preferably better. Otherwise, that is a point of all the risk and hard work in starting a business? You also need to aim to make enough profit to continue growing your business and renewing the assets that help it produce the wealth. Your advisers can help you work out a sustainable profit level for your business, and this should be reflected in your pricing. 4.Waiting to Acquire Financing: The need for capital is ever-present when running a business. They will never be a time when you wouldn’t like some extra funding on hand. A common misconception about business loans and other forms of financing lines of credit card is that you only use them when your business is struggling. Actually in an ideal situation the opposite is true business financing is best use to take advantage of excellent opportunities, such as bulk deals on inventory or to expand to a mew location rather than to dig yourself out of a hold. If you wait to long to acquire financing, you may not get the most affordable deal possible. Look into a line of a credit you can keep in your back pocket in case of opportunity or elite business credit cards while your financials are strong, rather than when cash flow is weak. 5.Don’t be Afraid to Fail: The biggest mistake you can make is to be afraid of failure. Failure is key to your success, and jumping into your fear is very positive for your future business. How you pick up after failure from your mistakes is the key to great success. 6.Don’t waste money: Handling money incorrectly and being irresponsible with cash flow is a death sentence for startups with limited access to capital. l have made the mistake of hiring too many people instead of the right people, and spending money to fill the top of the funnel without having a well- defined process to manage the bottom of the funnel. Putting good money to bad use and trying to be everything to everyone instead of being niche focused is a sure fire way to waste value time and money, which are the lifeblood to any start up.