As a business owner, your gross revenue certainly matters. You should set sales targets and if you have a variety of products or services offered, there should be targets for each line. Products come with varying costs however, so revenue does not tell the entire story.
If you sell products, you have hard costs to acquire materials, ship them, store them and possible assemble as well as labor costs associated with these processes as well as sales and delivery. Your accounting should reflect these categories, preferably by line item so you have a good cost structure and can easily see your profit margins per item.
Recently, I was meeting with a prospective company which sells a product in the food and beverage space. It is a very small company struggling with running the overall business, sales and having any type of strategic plan in place. As part of my initial process, I need to assess where a company is in all facets of operations.
Extracting information from this small business owner was an agonizing process. The owner could not give me cost of goods, how much they were paying their co-packer or sales in each category. This may sound hard to believe, especially for seasoned business owner, but we encounter this issue often.
If you do not know gross sales as well as the cost of those sales, the business could be losing money despite the top line revenue number. Typically, we see this kind of mistake with start-ups and not enterprises which have been in existence for several years. Start-ups can forget to price in their labor, office overhead and other miscellaneous expenses such as shipping, postage, utilities as many start their business in a home or shared workspace which is nominal in cost. As you grow, you will have to have more overhead so you need to plan for it.
Reaching for growth…
Another hurdle business owners can encounter is launching a new product or line of items. New products launches typically come with increased advertising or promotion costs to get the word out. Companies may even discount products to get them on the shelf, so to speak. This is fine if it is a planned-out strategy. With a set game plan in place, you know the costs will affect profits but once the promotional period is over or a targeted level of sales is reached, the bottom line will be in good shape.
Expanding is the way to keep businesses growing. You can penetrate more markets with your current products or you can add more types of items to your roster. Testing the market prior to a full-blown launch is also wise. This can be done in a variety of ways including sample sizes, trial offers, surveys from trusted clients before or after the product delivery and more. A structured launch will allow you to take the pulse of the demand for your new product line, assess sensitivity for pricing and preserve your bottom line.
One of the worst things a company can do is make assumptions about what your target market wants and launch a new division or product based on not enough in-depth research. Testing the waters in a measured manner is one of the best ways to preserve your bottom line.
While top line revenue is terrific, your bottom line must also trend up as well.
About Chapin Hill Advisors, Inc.
Kathy Boyle founded Chapin Hill Advisors in 2000 after spending her early career working in large and small investment firms on Wall Street. Chapin Hill Advisors works with privately-held businesses, often family-owned, to help them execute financial, estate and succession planning. We work with the business owner to be sure their business will provide their family with the financial security needed , identify areas of risk and help create strategies to mitigate risk.
Businesses often need assistance creating strategies to allow the business to succeed the owner as well as address structure, systems and procedures. As a business grows, the owner needs to have a plan in place to allow succession, whether an outright sale or a transition to family, partners or employees.
We work with businesses of all sizes to assist them in creating strategies to increase revenue and profitability and tie the future growth to the owner’s or families’ personal financial goals. With larger businesses, we offer a resource directory of trusted professionals. Small businesses or solo-entrepreneurs can benefit from Chapin Hill’s combination business and personal planning strategies.
As a fellow entrepreneur, Kathy speaks from experience. She has tested many strategies in the trenches and seen her clients make mistakes as well as successes. Kathy helps entrepreneurs implement strategies for future success and helps to coach them to execute action steps.
She has advised business clients of all types and sizes on structuring sales of their businesses as well. Without a long term plan and a team who can replace the founder’s talents, a business is less likely to be purchased. Kathy’s background on Wall Street and in financial planning allows Chapin Hill to implement strong financial controls and combine both estate planning as well as business planning for future success.
For more information or a complimentary meeting, feel free to contact Kathy Boyle at: firstname.lastname@example.org or 212-583-1992.