SALES ARE DOWN BUT PROFITS GO UP!
Protect Your Bottom Line
By Clinton Fraser
In uncertain times or slowing sales, you need to move quickly to protect your bottom line. It is kind of like sitting in the line up at Sunset and being ready to paddle for the horizon when that bomb set comes.
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 also thrives when sales slowdown and you do not have that 20-second two wave hold down!
Consider these 3 simple cost saving strategies.
1. Income > expenses Do you know your business’ breakeven 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 ($0 profit). Once you have determined your breakeven point, be realistic in assessing your likely sales and recalculate your result as your gross profit margin fluctuates.
2. Reduce your fixed costs > Successful businesses have their cost structure weighted to variable costs (i.e. low fixed costs). Activity Based Costings, a process that enables you to analyse and change your cost structure to change costs from fixed to variable. For example, using contractors to provide non-core services to your business is an example of a variable cost strategy. You can then pull the plug on this if needed.
3. Identify your business’ strengths and weaknesses > Benchmarking is a process that allows you to compare your business performance other Surf Retail businesses. Consider the example below.
Changing your sales mix by focusing on high margin product and offering incentive rewards to staff are examples of benchmarking strategies to increase gross profit and reduce wages costs as a % of sales.
Surf Industry Retails Benchmarking data has been made available by SBIA previously so this is a simple but incredibly valuable activity to undertake.
Implementing cost savings measures can be a difficult and emotional process however don’t get caught inside and start paddling.
*Clinton Fraser is a keen surfer and accountant from Davidsons, business advisors and accountants. He has facilitated at SBIA Roundtables.
For a no obligation discussion please contact clintonf@davidsons.com.au Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Bstar and Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.
