Keeping Your Profits

Writen by Michael Russell

Of course there are many different types of business that generate profit in various ways and it is up to each business owner to determine the relevant profit centres of the business.

It is, however, unfortunately, quite common for profit opportunities to be:-

Missed.

Not developed.

Squandered.

Given away and not grasped when the chance arises.

As an example let us examine the way Supermarkets operate today and how they operated when they first started to appear. When they first started they had a very limited range to offer, most of them had household and food products that were mainly low value, high turnover items with a relatively short shelf life.

Today they stock an enormous range of goods that vary greatly in value, stocking requirements and space. But they all have one thing in common, each article or product produces a PROFIT.

If you were to operate your business along the same lines as a Supermarket, but on a very much smaller scale, you would be continually on the look out for profit opportunities within your sphere of business.

It is important to be always looking for the possibility of expanding into other associated or relevant spheres. By doing this you would be continually expanding your product/service range. If operated efficiently, you would increase your profit centres and therefore the value of your business.

Profit can come from several sources into your business, many of which are not exploited because of the lack of knowledge, time, space, staff or various other reasons, but a progressive, efficient and well managed business will be constantly on the lookout for profit opportunities and overcome the reasons for not taking that opportunity.

No matter how you make your profit, whether it be from the sale of goods, services, information, knowledge, skills, labour or any other way, you must always aim to achieve the best possible return on your outlay.

Profit margins are usually determined in the main by the type and nature of your business .But that does not determine your profitability. Your efficiency and management determine your profitability.

As we said in the opening chapter it is essential to PLAN every aspect of your business in the greatest possible detail so you know what you want to achieve in advance and you are able to monitor your performance as you progress. In other words YOU must be in control.

Very closely allied to profitability are operating costs or overheads. We devote a separate article to this subject so we will not go into that question in detail here but will just say that your profit can be greatly affected by your costs and overheads. That is one of the reasons why total control is so very important when operating a business.

Let us take a couple of simple examples. If you bought a product for £50 and sold it for £100 you appear to have made a profit of £50. But take away your overhead costs of, say £45 and your profit immediately reduces to £5. Not very impressive. Let us take another example of employing a skilled tradesman at a wage of £20 per hour plus all his employment costs. He goes out on a job for which when completed, you can charge £80. But in fact it took him 1 hour to do the job, plus ½ hour travelling time in your vehicle and no other job to give him on his return for another hour. The result is a net financial loss to your business.

This is one of the main reasons why you should:-

Maximise your profits.

Be fully aware of your Costs/Overheads.

Rigidly control your Costs/Overheads.

Have full control of your business.

You can only do this if you have plans in place and information to hand at any given time. When you make a profit make sure that you know how to keep it.

Michael Russell
Your Independent guide to Small Business