Dear M & M: I have been in business for several years. I always get by but never seem to be making any real money. What should I do? – Gail
Dear Gail: There could be several solutions to your problem. Consider looking into this one.
It is important to understand more than your bottom-line profits. One must look at each individual product or service you are selling. The contribution each and every product adds to or takes away from that bottom profit line is important to know.
Are you spending resources unwisely? It doesn’t make much sense if you sell a product and are only making $1 while paying $2 in wages.
Let’s say I am selling that plate of food for $10 and I am only making $2 once I sell it, I am not going to have enough money to pay for other expenses like rent, utilities, insurance, labor, banking fees, etc.
Are you tying up money in inventory that could have been used somewhere else to generate more revenue? With everything we sell, one needs to understand what it costs and how much profit there is when it sells.
Will you have enough left over to pay the other bills? Sounds easy, doesn’t it? Do you know what your break-even point is? How much do you need to sell just to break even each day?
Do you know what your daily fixed costs are? Do you understand and know you daily variable costs? Are the margins on what you sell able to cover these fixed and variable expenses?
A good net profit comes from managing operating costs while understanding profit margins on whatever you are selling.
ASK M&M is prepared and submitted by Mark Schmitt, director of the Small Business Development Center at Cochise College; and Mignonne Hollis, executive director at the Arizona Economic Development Foundation. To ask your questions: Call the Small Business Development Center (SBDC) at Cochise College (520) 515-5478 or email firstname.lastname@example.org or contact the Arizona Regional’ Economic Development Foundation at (520) 458-6948 or email email@example.com; www.aredf.org.