Repeat after me “SALES IS NOT PROFIT”
A lot of people make the mistake of assuming that their business is successful because they make a lot of sales. This is a very dangerous assumption which can run your business to the ground.
There are other aspects of a business which are crucial to the success of the business; I have created a short list of the areas you need to check to ensure that your business is on a healthy path:
- You are selling a lot of the wrong things:
It is important to know what your profit margins are on every product or service that you provide, this would ensure that you promote the items with higher profit margins first. Most supermarkets and mega stores use this same strategy.
They would place the more expensive products within eye level, so when you search the shelves your eyes go there first and they place the cheaper items below or high above so you would have to really make effort to skip over the expensive ones. For example, you should aim to sell more of the items with a 40% markup, than a 10% markup.
2. Too much discount or poor pricing:
A lot of businesses let the desire to make sales overrule their judgement and end up underselling themselves. You may be making a lot of sales with your reduced price but your expenses may not have reduced, so you might end up giving away your goods and services for free. If you are giving away your goods for free, it’s no longer a business it’s an NGO.
3. High overhead expenses:
The other side of the sales equation is the expenses. You might say “I buy my goods at N500 and sell at N1000, therefore I should be profitable, but that is not always the case. There is a lot more that goes into making the goods available which might be eating into your profits.
Overhead expenses are items such as, rent, salaries, utility bills, equipment etc . If these costs are not kept at a safe low you might be heading for difficult waters.
4. Fraud:
This is most applicable to businesses with employees. You might be making a lot of sales on paper but your staff may have created a loophole to redirect some of that money to themselves. This is also possible with one man businesses; you could also get defrauded by your customers or your suppliers.
All of these issues can be easily resolved by keeping proper records of your accounts and reviewing your records constantly. Ensure that your inventory records match your accounts records.
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