| It is a natural phenomenon for small business | | | | achieve that level and what additional |
| to be deeply involved in the particular | | | | promotion can be done to increase sales |
| skills and operations of the business. A | | | | volume even higher. Thinking about how the |
| fundamental issue that many small businesses | | | | sales volume was obtained is the basis for |
| overlook is that the particular industry in | | | | determining how even higher levels can be |
| which they work and their personal skills are | | | | produced in succeeding months. |
| just tools of the trade not the trade of | | | | |
| business itself. That trade of business is to | | | | Selling prices are often driven by market |
| produce a satisfactory bottom line. | | | | forces and product costs. An important area |
| | | | to consider is whether the sales prices |
| While all business keeps financial records | | | | obtained where the maximum prices obtainable |
| and many use accounting software the serious | | | | at the same volume. Other considerations |
| benefits of producing the accounts has a | | | | would be to consider the effect of increasing |
| tendency to be restricted to accounting for | | | | sales prices which would increase |
| tax purposes. The most useful function of a | | | | profitability if the same volume is |
| good bookkeeping system is however to use the | | | | maintained and even the effect of reducing |
| financial information to generate higher | | | | sales prices if the volume of business |
| levels of profitability. | | | | increases to produce a higher level of gross |
| | | | profit. |
| The first step is to acquire and adopt an | | | | |
| accounting software package suitable for the | | | | Businesses in niche markets can charge a high |
| skills and knowledge of the small business. | | | | selling price for the products or services |
| The second essential step is to produce a | | | | without affecting the demand for the goods. |
| regular monthly income and expenses | | | | On the other side of the coin the supermarket |
| statement, usually called a profit and loss | | | | approach could be adopted by generating high |
| account. | | | | volumes of sales from promoting the products |
| | | | at the lowest available prices. |
| Any individual monthly profit and loss | | | | |
| account is of useful by limited value as a | | | | The most critical area to be considered is |
| financial tool. Several consecutive monthly | | | | the marginal profit from different products |
| financial accounts can be indicative of where | | | | or services. The marginal profit is the gross |
| action can be taken to use the bookkeeping | | | | profit which is the difference between the |
| tool as a tool for accounting for profit. | | | | net selling price and the variable cost of |
| | | | that business area. |
| Having produced a set of monthly accounts the | | | | |
| next stage is to simply sit back and look at | | | | A lot of time can be spent working in the |
| the numbers. The financial numbers tell the | | | | wrong direction, By identifying the most |
| story of how the business has performed | | | | profitable items compared with the time and |
| financially and with an intimate knowledge of | | | | effort involved the small business can become |
| how the figures came about the small business | | | | more financially efficient by diverting more |
| owner is perfectly placed to consider all | | | | effort to those areas producing the highest |
| potential options. | | | | financial returns. |
| | | | |
| Sales turnover is a critical area to be | | | | The essential tool to this study is to |
| considered. The historical sales income | | | | maintain accounting records on a regular |
| should be viewed in three separate modes | | | | basis and produce a monthly profit and loss |
| being sales volume, sales prices and marginal | | | | account. Periodically take a step back and |
| profitability, the most critical and | | | | consider the direction, future and |
| important of which is likely to be marginal | | | | opportunities available based on historical |
| profitability. | | | | performance and the changes required to |
| | | | positively influence the bottom line, using |
| It is useful to stand back from the numbers | | | | and viewing the accounting software as a |
| and consider how the sales volume was | | | | business tool. That tool is accounting for |
| achieved, what the driving forces where to | | | | profit. |