Remember when you started your Small Business full of enthusiasm and excitement peppered with some…
Why There’s More Profit in the Detail
Numbers are numbers, right? Wrong. Particularly when it comes to financial reports. You see most accounting systems are set up by accountants or bookkeepers who have for years set them up to make it easy for the preparation of your required annual financial statements and tax returns. Now don’t blame your accountant. In fairness for decades, they were trained to do just that and had no concept of anything different.
In more recent years, particularly with the advent of Xero and other online accounting systems, small businesses have the flexibility in their accounting systems that previously only the larger businesses had with the very expensive software. The challenge now is to use this flexibility to create reports that are useful for management purposes.
I was talking with a business associate the other day about how I’d reduced my online subscriptions and eliminated a number that were just not necessary, and she asked how I’d done it. An interesting question that seems so obvious to me and yet I rarely see this used by others and it got me to thinking.
Every business should set up their accounting system to provide as much detail as possible about the various expenses you pay. For example, I have every online subscription as a separate account. This means that when I print out my monthly reports, I can check for two things.
Firstly, I compare what I’ve paid in the current month against the previous months. If there’s a payment that I’ve missed, I can quickly investigate and make the payment to keep my subscriptions up-to-date.
Secondly, I can scrutinise each subscription and ask myself whether I am still using it. If I’m no longer using the service, I immediately take steps to cancel. Now for some subscriptions, I’m locked into a contract for a specific period, and that’s fine. What I do with these though is make sure the payments don’t continue beyond the end of the contract by ensuring that I do cancel at the appropriate time.
These same rules I apply to all the other expenses in the profit and loss statement. What I’ve found over the years is I’ve been able to cut those subscriptions and other costs very quickly when they cease to be of value to the business. It’s in the scrutiny of each payment that you start to truly consider whether you need to keep making the payments, whether you’re getting value from the expense or whether the expenses are essential to running your business and making a profit.
Now you might argue that you review your expenses when you pay them and that worked well up until a few years ago. With many costs automatically charged to your credit card, the scrutiny is harder. By setting up your accounting system as I’ve described, you can’t help but seriously consider each cost one by one.
I’ve recently taken the major step of changing my CRM system. Not an easy decision as I had invested heavily over the years in training, establishing the system and maintaining it. But in the clear light of day seeing the costs month after month and knowing that it cost me more than alternatives that would give me all that I needed (I was using perhaps 10% of the capability of the system I had), I changed and reduced my costs by $250 per month. That’s $3,000 extra profit without having to make a single extra sale.
Now there does come a time when you cannot cut anything more, and that’s the place you should be aiming to be as then you’re no longer wasting money paying for services you’re not using or getting value from.
These same principles can be applied to every aspect of the numbers in your business. Then every month when you check your results you have the opportunity to fine tune and reduce or eliminate unnecessary costs.
Beware though that this process doesn’t eliminate the requirement to focus on your revenue and ensure that you have ongoing sales and income. What I’ve found though is this is an area that many business owners overlook and yet you may well find savings in the hundreds of dollars per month which could easily add to your profit.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
SHARE THIS ARTICLE WITH LIKE MINDED SMALL BUSINESS PEOPLE