Grow your business with profit in mind

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For many business owners, growing your business is a priority. But what business owners often don’t consider is that not all growth is equal. When growing your business, you need to monitor specific KPIs to ensure that you are growing your business profitably.

A great way to monitor whether you are growing your business profitably is to monitor your profit margin.

Your profit margin is the percentage of revenue your business retains as profit after all costs and expenses are taken into account. Calculate your net income (income minus all expenses) and divide it by your total income. For example, if your business had sales of $100,000 last year and had total expenses of $85,000, your business’ net income would be $15,000 and your profit margin would be 15%.

Profit margins vary widely from industry to industry, so benchmarking your business against others in your industry is essential. You want your company’s profit margin to be at or above the average.

A business financial plan is a useful tool for implementing a growth strategy. A business plan is a 12-month operating forecast that breaks down month-to-month revenue and expense growth and ensures that you maintain your profit margins or increase them.

When profit margins shrink, you have to work harder to make a profit. Conversely, when profit margins increase, the additional earnings can be reinvested in the business. Regularly monitoring your business profit margins will help ensure your business grows profitably.

Ways to ensure that you grow your business profitably:

1. Create an operating forecast

It is essential to have a realistic idea of ​​your expenses and the income you can expect to derive from them. This is called creating an operating forecast. To do this, start by estimating your costs for the coming year, including rent, salary, inventory, and utilities. Next, estimate your expected income for the year. This can be done by reviewing previous years’ sales or by conducting market research. Once you have these two numbers, you can start creating your operating forecast.

Remember to keep your forecasts realistic and update them regularly as your business grows and changes. This will ensure that you always have a clear idea of ​​your financial situation.

2. Track your progress each month

At the start of each month, review your sales forecast and compare it to your actual sales. This will help you see how accurate your predictions were and if you need to make any adjustments. It’s also a great way to track your progress and identify trends.

For example, if you find that you consistently underestimate the expected sales for a particular product, you can adjust your forecast accordingly. And if you notice that sales tend to be higher during the summer months, you can factor that into your forecast for the rest of the year.

By monitoring your progress against your monthly forecast, you can ensure your business is on track to meet its goals.

3. Investigate discrepancies

It is essential to keep an eye on your finances. One way to do this is to study deviations from your forecast each month. This means looking closely at why your results differ from what you predicted. Are you spending more in certain areas than expected? Is the number of customers lower than expected?

By investigating the discrepancies, you can better understand your financial situation and make adjustments accordingly. This will help ensure that your business stays on track and remains profitable.

Ultimately, as you grow your business, keep an eye on key performance indicators like profit margins. Proper tracking of these metrics will help you make decisions that will grow your business profitably. And as always, a solid financial plan can go a long way toward achieving your growth goals.

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