When small business owners think of financial information, they tend to focus on the benefits of timely accounts receivable and accounts payable processes. While these are certainly the keys to maintaining a healthy cash flow for your business, there are other, more specific, business records that can prove just as beneficial for your business’ future prosperity.
Profits by item type. Prioritising your profitable products is especially important for retailers who may have a wide variety of products and a limited amount of storage and display space. There might also be limitations on restocking timeframes if products are imported. By reviewing your product range for individual profitability, you can focus on those products that provide the best return on your investment. Understand that the highest selling item doesn’t always equate to the most profitable item, but you also need to keep in mind that removing the highest selling items from your stock will impact consumer’s interest in your business, likely impacting other item sales.
Cost of goods sold. A key element of your profitability is the actual cost of goods sold. You will need to consider all aspects of the sale, including things like rent and other utilities, labour, shipping, storage and manufacturing in addition to the actual cost to you of purchasing the item. May small businesses fail because they price their products based on a profit margin added to the amount they paid for the product, without accounting for all those other direct and indirect costs. Careful examination of these costs may also alert you to areas that can be improved to streamline the process and reduce costs.
Online or in-store. Consider two sales: one, you sell an item in your shop, the customer pays you, you process the payment and hand over the item; two, you sell an item over the phone or online, have to package the item for delivery and (if online delivery isn’t your core business) you may even have to travel to the post office or chase up a courier. While online sales can be very cost effective, that is really only the case if they allow you to do away with costs associated with owning or renting a physical shopfront. If an increasing percentage of your custom is coming online, you have a decision to make as to whether you continue with both sales methods or move to a fully online shopfront (be aware that this will automatically reduce your brand visibility in your local area).
These are just a few of the impacts that detailed financial reports can have for your business, so if you really only focus on money in and out, now might be the time to start investigating your business transactions a little more thoroughly.
By Jennifer Lowe