How much is your money costing you?: Three things to consider when sales are up!

Cash is king! Making more money means your business is more profitable! …. Right??

As a small business owner, I am sure that you are acquainted with the hard reality that there are a lot of nuances and exceptions to these well-known cliches. As small business bookkeepers, we understand that growing your business is almost always on the forefront of your mind. But let’s stop and take a minute to talk about those nuances. All too often, we have seen small business owners get exhilarated from a great month of sales, only to face the frustration the following month when the expenses roll in. We strongly encourage our small business owners to look beyond the top line of their profit and loss statement. Past the income, you will see a figure that takes into account what your expenses and cost of goods sold were. Your bottom line. This number is the one you want to focus on increasing! This means you can’t just focus on growth without evaluating the other side of the coin.

Planning ahead is crucial along with evaluating your expenses and profits to make sure you are indeed getting the most bang for your buck!

Here are three things to watch out for with a boost in sales:

Wages:

There are two different ways that you should evaluate your labor when you are hit a busier season and see an increase in sales. First, remember to set aside enough of your profit so that you are not caught in a lurch when payroll comes around the following month. With higher sales comes the need for more labor. Plan ahead! It can be tempting to start reactively tossing money back into your business into expenses that aren’t immediate obligations. Plan to cover the increase and wait until you see a trend to make big changes or updates. Second, as your business scales, make sure you maintain a quality in your labor that will keep the increased sales steady. If you start getting busier and either overwork your current employees or make quick decisions to fill out the need, you can end up shooting your success in the foot. Stressed and under-trained employees can lose you sales faster than you may think!

Other Expenses:

The same consideration needs to be given to how much you are spending on your materials -- whether it is food or product or computer software or cleaning supplies, from dentist to dog-groomer, the cost of running your company will inevitably increase as your sales do. As with wages, make sure you plan ahead! Set aside enough to cover the invoices that will start rolling in the following month. But you can go a step beyond this. If you know you need to purchase more product from your vendors, proactively work deals. They are going to like the bigger orders and will often times give your bulk discounts or better rates for your larger orders. This kind of behavior is what can end up actually increasing, not just the revenue for the month but your bottom dollar profit.

Industry Standards:

I don’t think I could stress this one enough. Know your industry trends and standards! This might sound high-falutin but really it just means to know what the averages are in your area of small business. What do people in dog-grooming normally spend on wages? What do dentist offices your size typically spend on office supplies? You would not believe how much information is out there! Your bookkeeper should be helping you navigate this information and set monthly goals but if you are on your own, a simple google search can take you a long way. These averages and standards will be vital to keeping you on track when your sales increase. They will be great targets to aim for but also great for looking back to evaluate how you did. When you do this, you can strategically step into the following month of sales with a focused plan, not just for an increase in sales but for an increase in bottom line profit! So what is the bottom line to increasing your bottom line? Be purposeful. Plan and evaluate, looking especially at your wages and cost of goods sold. Don’t make reactive decisions to a boost in sales but be smart. Know what everyone else in your industry is doing and use that to launch you into real, money-making growth in your business.