How To Find The Real Profits In Your Business

by Daniel in Profit

HOW TO FIND THE REAL PROFITS IN YOUR BUSINESS

It seemed like your biggest year yet…

But your accountant says you haven’t made the profit you expected…

And that trip to the Gold Coast you have been promising the family? It’s going to have to wait. Again.

What happened?!!

You worked more hours.

Did more jobs.

But you don’t seem to be getting a lot more money.

Another disappointing year.

You start wondering if this ‘owning-your-own-company’ thing is really worth it, with all the extra stress that comes from dealing with the bank and suppliers… complaining staff… and your family who says you are never home.

HARD WORK (BY ITSELF) WON’T MAKE YOU SUCCESSFUL

You aren’t alone – this is a common problem. Working so hard on getting the work done, there is little time left to ensure you are getting a fair return for all your efforts – in other words, profit.

This can happen no matter what size your business is, and regardless of whether your business is growing, shrinking or even static.

(However if you are growing quickly, this is an even bigger danger.)

Hard work is vital to the success of your business. Anyone who tells you otherwise is talking rubbish.

But it’s not enough to be working hard.

What are you working hard at?

You’ll get better results when you focus on the right things.

That’s how you can start to make the real money – money that stays in the bank so there is still enough left for you to pay yourself properly for all your hard work.

But if you’re like most tradies, you weren’t taught much about the business side of things.

Sometimes it helps to have someone clearly lay out where to start.

So let’s keep it simple – and talk about the one real key to profit.

THE KEY TO PROFIT

To ensure you consistently keep making good profits and have money in the bank, it’s important to focus on margins (sometimes called “gross profit margins”).

Basically, this is the profit you make after all direct costs of the job have been taken out.

Here is a simple example of a Plumber and his margins on sink repair:

Note: Margin is calculated as Gross Profit divided by sale $84 / $250 = 34%

Remember also that you have other overhead costs after this – rent, power, phone, admin, insurance, etc which will also be taken off later. Don’t worry too much about these at this point, but just be aware these also have an effect.

If your business is growing but you don’t seem to have any money, or profit is not increasing, then the first place to look is at your margins. If they are too low it doesn’t matter how much work you complete, you won’t be able to make any significant profit.

Let me put this another way – get your margins wrong and you could work all the hours under the sun, including weekends and nights, get more staff, work harder than you ever have before…

…but you still won’t make more money.

HOW TO GET IT RIGHT

Increasing margins will give you good healthy profits immediately, before looking for any more business.

Let’s take a look at what can happen when for example, gross margins improve from 16% to 26% on a business with sales of $1 Million.

By getting margins right, another $100,000 is added to your bottom line.

What would an extra $100K do for you?

KEY TAKEAWAY

• Margins are what drives profit.
• Increasing your margins is a very effective way to make profit quickly.
• Start here to ensure you get on the right track.

Want to avoid the common pitfalls? Get my free e-book here