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Volume does not equal profit 13 Nov 2013

I heard a joke recently about a couple of dopey businessmen.

They were buying cabbages and selling them at the same price as they paid for them.

“We’re not making any money,” said Eric.

“Well,” said Fred. “We’d better get a bigger truck so we can sell more.”

It’s not about the volume of sales so much as profitability. Keep an eye on this.

The same applies if you’re busy. Being busy is not necessarily being profitable. A plumber friend who proudly said recently his workload was up 30 percent, was shocked to find he’d not made any more profit than a year ago. He was busy doing work that wasn’t making him money.

If you prepare two-monthly GST returns, use the figures to monitor your business. You’ll probably need to make some adjustments, particularly if you use the payments basis. Discuss this with us.

When your business gets bigger, get proper accounts done, regularly. We’ve seen too many clients discover how badly their businesses have been performing only well into the following year. Twelve or more months of losses are likely to cost much more than the extra needed for regular accounting.

 

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