There are numerous reasons why business fail and these can include lack of planning, poor financial management and leadership, lack of profits or marketing strategy, just to name a few. In order to survive, a trade business owner needs to ensure that all the business functions are getting full attention. However, playing the jack of all trades within the business can lead to important business functions being unattended to.
As your business grows, one asset that can add value to how you operate and achieve your goals is continuous learning. Change is inevitable and continuous learning, for a business owner, is a strategic approach that can ensure your business survives in turbulent times and thrives in stable times.
Job costing is the best way for you to increase your profit and cash flow. This means you need to track the profit of individual jobs. For example, any single job may involve differing costs of labour and materials. You need to work these out and allocate the materials and labour to each job. Once you have completed this task you need to make sure you can easily see the breakdown of invoices and expenses on the job. That way you can work out your gross profit margin. Electricians and plumbers usually have similar gross profit margins. Once you understand what the margin is, you should be able to compare your margin to industry average. We have seen a lot of clients that are including direct costs in overheads and this means that you cannot see your gross profit margin. This is dangerous because you do not know where you are losing money and how to improve the performance of your business. The simple formula for gross profit margin is below:
Boosting profit should be the main aim of a business owner. Whether you have a trade business or you operate in another industry, you should have the goal of boosting the profit of your business. In too many businesses, especially with turnover between 1 and 5 million, the net profit margin is far too low or even non-existent. The main trap the owner or the entrepreneur falls into, is to think that growing revenue and boosting sales will help them get to this magic profit target. In actual fact, usually this method of approach does not work and only compounds to the problems of an unprofitable business.
This information is designed to give you insight into why it is important to decide where you want to be positioned in your market. This positioning happens through your pricing policy. You’ll find out what establishing pricing policy involves for your business and what it could mean to your future.