The reason for being in business is to make a profit and there is no reason why a business should not be profitable. To quote one of my mentors “if your costs are 99 cents for every Rand of income you will never run at a loss.”
After all, profit is what’s left over from your turnover after you have paid all the costs of running your business. Profit is not always generated every month – some months you will make a small profit, others you may make more. And there are some months when you will not even make a profit. For example if you have a large expense for stock or equipment. However, in the following months your turnover should have fewer costs.
None the less, to be successful you must always fight to protect the profit line. The key to profitability lies in two areas – knowing what your break-even point is and keeping costs in line with turnover.
There are two ways to guarantee your business is profitable:
- Pre-planning your turnover and pre-allocating the costs – this is called budgeting.
If, at the beginning of the month, you write down all your fixed costs – these are normally rent, telephone, electricity and water, bank charges etc. Then list your variable costs such as salaries, commissions, stock etc.
The sum of these costs gives you your break-even point. If you keep costs in line with what you budgeted for anything over that becomes profit.
My Salon Software makes it easy to protect the profit line. The Income Statement allows you to populate all these budgeted costs and from day one the system will reflect a minus figure in the profit line. As you generate daily turnover daily you will see the minus figure become smaller until it is Zero. This is your break-even point. Thereafter you are generating profit. It might be only on the last day, or in the last week but that is the fun/challenge in business – seeing how early in the month you can reach your break-even point.
- Increasing turnover will solve 99% of your problems. This will involve a multitude of strategies including marketing, promotions, staff skills training, target setting to name just a few. These will be covered in future blogs.