Here are three steps to a more productive way to talk about profit, so you can be sure you have it.
A lot of businesses set a goal for Operating Profit (making sure it can cover loan payments, dividends and funds for reinvestment). About Starfish ConsultingI consult with franchise businesses, specifically those with 10-80 franchisees who want to grow. From my experience in franchise leadership and coaching, I'm confident of my speciality, which is strategic and business planning and executive coaching for franchises. For businesses that are on a basic level, such as working from home with no other staff and requiring little equipment and materials, this initial calculation is relatively straightforward.
You have to make a judgment decision on how much you can realistically charge, bearing in mind that in most cases it’s going to be more profitable to sell a lot at what is deemed to be a fair price than just a few at an exorbitant one.
Even successful businesses can suffer when leaders cause themselves unwarranted stress just because they don’t feel in control. The starting point is to be truthful about how much you need to make and how much you are making.
We also forget that nothing good really comes from beating ourselves or others up about how things turned out. The more complex and large your business is, the more you will benefit from an accountant’s professional advice to ensure your budget is accurate.
If you knew that you would be selling, say, a thousand widgets a week you could arrive at an exact cost per unit, to which you would add a profit margin.
This means unit costs will vary, since your fixed costs will remain substantially the same no matter how many or how few sales are made.
Also, in a start-up situation you will probably have to accept that there will be a development period during which the business will be operating at a loss. The most valuable form of advertising for a new business is word-of-mouth from satisfied customers. It can make sense in some circumstances because, as long the price is greater than direct production costs, a contribution is made towards overheads.
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