There’s a common phenomenon in businesses that have been around for a few years. It’s one we call the mystery of the vanishing profits.
Sales are healthy and on the increase, yet profits are stagnant or even declining. How did that money vanish?
Business owners and leaders in this situation find themselves with few clues to go on. They can see the net effect on their profit and loss account – but the underlying causes aren’t clear.
More Sales, Lower Profits
Perhaps a sales drive is the answer? Sorry, that just made things worse. This is a classic example of where financial numbers need to be turned into useful data and interpreted to provide insights. The result: better informed decisions.
Some cost lines in any business more or less inevitably increase over time. This could include staff costs, rent, energy and supplies. Conversely, real term prices for what you sell might struggle to keep pace in a competitive market.
It’s far more common than you might think for products and services that owners see as the revenue-generating bedrock of their business to be, in reality, draining profit.
If you sell more of these low margin lines, the overall profitability of the business takes another hit (particularly if you offer discounts to increase sales volume). You need a detailed understanding of production and sales costs to make the right calls.
Your Vital Financial Insights are Waiting to be Discovered
Business finances are an intricate mechanism. Ill-informed changes in one area can have unforeseen consequences that eventually show up on the bottom line. Tracking the outcome back to the cause can be difficult if you don’t know where to look.
But here’s the thing: most of what you need to know to help you make better decisions is in your financial data – particularly if you’re using modern cloud-based accounting software.
What it needs is for somebody with the experience and the time to dig below the headline numbers and find out what’s really going on.
Would you like to know where inefficiencies are lurking that cost you money and erode your profits?
Make your numbers make sense. Contact us at Rosy Jeffery Chartered Accountants on 01297 639457.
