How gross can your gross profit be ?

YOU will have often heard people refer to the Net Profit of a business as the "Bottom Line". It is obviously one of the most important figures in a financial report. Perhaps it should be presented as the top line. Another figure of considerable importance is the Gross Profit. It drives the Bottom Line. You can classify your expenses into those which vary directly with sales, and the rest, often termed Overheads. The cost of books and stationery in a bookshop is directly proportional to its sales. To a caterer it is the food and to the supermarket it is the stock on the shelves. If all three employ a reasonable size sales staff, then the wages paid will usually be a variable cost. Gross Profit arises from deducting the cost of the books and wages from the sales. In a well run business, this figure will usually be a fairly constant percentage to Sales. It will usually be fairly constant for everyone in the same type of business. This means like businesses can be compared. If something is wrong with your Gross Profit percentage to sales, here is a list of some possible reasons: • Your business is too small. For example, a sole-operator builder. • Wastage. This is common in restaurants. • Bad buying. Superettes may be too small to buy at the best prices. • Bad selling. Too much price discounting. Getting rid of old stock. • Shop-lifting. • Theft of money from the till. • Sales mix: - A change in the proportion of high profit to low profit sales. - A change in the mixture of labour-intensive and materials-intensive jobs. - A change to using more subcontractors and less direct labour • Bookkeeping errors: - Costing stock. - Pricing stock. - Stock omitted or double counted. - A payment for purchases not included as a business expense, perhaps charged as an overhead or even as a personal expense. - A payment which is not purchases being included in purchases. - Sales omitted, for example, put into a second bank account and overlooked. - You or staff take stock for own use and an adjustment for this is overlooked or under or over stated! • Some wages, for example office staff, wrongly included as a variable expense. Constantly monitor your Gross Profit percentage. A change of a mere 1 percent makes a, big impact. Put energy into this part of your business to make your profit grow.