'What are we doing wrong?'

This is a common question but it might not be that you're doing anything wrong, the issue may be due to a combination of factors.   The following are the usual culprits, but there may be others to consider too.   The focus is always on tracking and measuring profit and how it has been applied, not just turnover.

1. Are the Figures Right?

Accurate financials allow you to make informed decisions, so check them regularly.   Sometimes the errors are to do with the bookkeeping or processing, and sometimes are due to errors of principle.   Have a good look at them and ensure they are right (bank reconciled monthly, debtors and creditors correct and balanced, loans recorded, personal expenses are not written off as business costs, costs correctly allocated, etc).

2. Understand the Reports

It's important that you have at least a basic understanding.   Too many owners are overly concerned about tax, whereas the emphasis should be on making sound profits.   Tax planning can probably get you a bigger benefit than merely charging a personal item to the business.   Assets go in the Balance Sheet (and they can be written off in the tax return), Repayments reduce loans and are not a cost in the Profit & Loss Statement.   Also, because you invoice a sale doesn't mean you have the cash in your bank account as yet.

3. Manage Debtors

Issuing an invoice means a sale and profit when the sale occurs, but you have to ensure customers pay accounts promptly to manage cash flow in the business. Follow up customers when payment is due.

4. Has Every Sale Been Invoiced?

All sales need to be recorded, not only for tax.   From Sales we can determine the Gross Profit Margin, consider Pricing, reduce Waste and Shrinkage, etc.

5. Eliminate Waste in the Business

This could be in product (breakages), excess materials used in manufacture, surplus labour, or bad systems.   All waste need to be minimised, so eliminate errors or low productivity.   Ensure systems and processes are efficient so there is no duplication or time lost on solving problems.

6. GST

Allow for GST in your prices, ensure your software is set up to calculate GST on sales and costs.   Incidentally, most BAS are prepared on the Cash Basis (GST on sales collected, costs paid) but Financials should be on the Accrual Basis (the true profit, not just cash in and out).

7. Focus on the Profit Drivers of the Business

The key profit drivers are Sales, Gross Profit, and Overhead.   You can't grow a business by a small reduction of overheads, the growth and profit will be from Sales (new leads, conversion rate, new customers, retention of customers, price), and reducing Cost of Sales (or cost of product or cost of manufacture).    A small change in each of these can significantly increase profit, perhaps many times over.

8. Pricing must be Right!

This is so important.   When you quote (or set a price) do you allow for cost of purchase, plus freight, plus storage, plus direct and indirect labour, overheads, and a profit margin?   Price strategy also needs to consider competitors prices, the perceived value, and even what the market will pay.   It is up to you to determine your fee structure, and if you communicate excellence and value, there should be little opposition to perhaps a higher sale price difference.

So if you're not showing enough profit and cash for all your hard work and investment, the first step is to make sure you're measuring what's important.   Start with these factors.   The big improvement is likely to be from concentration on the Key Profit Drivers, No 7.   If you'd like to see how a few small changes can make such a big improvement, we'd be happy to show you with some software we use.   Most people see a solution that suits their needs very quickly.