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Sales are Down but Profits go Up!

Article By Adam Hurwood | | Business Consulting
In uncertain times or slowing sales, you need to move quickly to protect your bottom line. Ignoring or delaying a decision to ‘cut’ the fat from your business will significantly impact your business’ performance, cash flow and future survival. Examining and restructuring your costs will ensure your business not only survives but thrives when sales slow down. Consider these 3 simple cost saving strategies.

Income > Expenses

Do you know your business’ break even point? Break Even Analysis identifies the minimum sales you require to cover your “necessary” business expenses. It requires you to calculate your total fixed costs (i.e. rent, interest etc.), gross profit margin and then you ‘sensitise’ your sales to produce a break even result of $0 profit.

Once you have determined your break even point, be realistic in assessing your likely sales and recalculate your result as your gross profit margin fluctuates.

Reduce Your Fixed Costs

Successful businesses have their cost structure weighted to variable costs (i.e. low fixed costs). Activity Based Costing is a process that enables you to analyse and change your cost structure. For example, using contractors to provide non core services to your business or outsourcing the distribution of your products (i.e. freight) are examples of variable cost strategies.

Identify Your Business’ Strengths & Weaknesses

Changing your sales mix by focusing on high margin product or service lines and offering incentive rewards to staff are examples of benchmarking strategies to increase gross profit and reduce wages costs as a % of sales. Most benchmarking data can be collected from your Industry Association, Accountant or Financial Adviser.

Independent and Objective Advice

Implementing cost savings measures can be a difficult and emotional process. Your Altitude Business Adviser is best positioned to provide you with professional advice to assist in making these changes as painless as possible. Click here to contact them today.