You would assume that business owners would understand the finances of their businesses intimately and know exactly how much profit (or losses) they are generating, but it’s not always the case.
Ever since I decided on the type of business I would run, I’ve been operating my business i’ve always tried to stay on top of my business finances, however, it’s not as easy as you might think..
A few weeks ago some mates and I were talking about how much money they were making on their businesses and after looking into the details they found that they were (in some cases) actually making a loss. This is a devastating realisation, but it’s an important thing to understand if you want to operate a successful business.
So I also decided to review the numbers for my own business, and the results were quite alarming. I knew all the big ticket expenses and they were all tracked very well, but all the small things like returns, or damaged goods, inspections and advertising which were eating into my profits. I found that most my items were still making good profit, but there was 1 item I wasn’t even selling yet, which when I factored all these extra little costs in I realised that I would have been selling at a loss at the price I was planning on selling it for.
I’m come to the realisation that running finances in a business is actually a lot like running the finances for a household. There are no end of expenses that must be paid, and there always seems to be a limited amount of money coming in. It’s how you balance it that matters.
Probably the biggest difference is how really really small amounts can add up. Because I am buying thousands of units of product at a time, even just a few cents off the per unit price can make a big difference to my overall profitability. I’ve also found that the bigger the shipments I send, the more money I end up making as I have to pay the same amount of freight fees no matter if I send 1 box or 1000 boxes.
Do you run a business? How well do you keep onto of your books.