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Money Management, tips and advice - Concepts and insights to help your business

Sales & Profit

Sales are Down, but Profits go Up

Reading time: 1 - 2 minutes

In uncertain times or slowing sales, you need to move quickly to protect your bottom line.

Ignoring or delaying a decision to cut the fat from your business will significantly impact your business performance, cash flow and future survival.

Examining and restructuring your costs will ensure your business not only survives but thrives when sales slow down.

Consider these 3 simple cost saving strategies.

1. Income > expenses

Do you know your business break even point? Break Even Analysis identifies the minimum sales you require to cover your "necessary" business expenses. It requires you to calculate your total fixed costs (ie. rent, interest etc), gross profit margin and then you sensitise your sales to produce a break even result ($0 profit).

Once you have determined your break even point, be realistic in assessing your likely sales and recalculate your result as your gross profit margin fluctuates.

2. Reduce your fixed costs

Successful businesses have their cost structure weighted to variable costs (ie. low fixed costs). Activity Based Costing is a process that enables you to analyse and change your cost structure. For example, using contractors to provide non-core services to your business or outsourcing the distribution of your products (ie. freight) are examples of variable cost strategies.

3. identify your business strengths and weaknesses

Benchmarking is a process that allows you to compare your business performance to like businesses.

Independent and Objective Advice

Implementing cost savings measures can be a difficult and emotional process. Your Accountant (hopefully Cliftons) is best positioned to provide you with professional advice.

Seek Cliftons advice and assistance to implement these strategies.

 


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