Understanding profitability is about knowing your income streams, cost of sales and cost to deliver on those sales. If you don't understand your cost to deliver you cannot place a value or cost on your goods or service. This will affect your income, and therefore your profit.
At jkc consultancy, we believe a strong foundation based on the analysis of 3 key numbers - and this is about business 'as is'.
Income. Understanding this is crucial and, depending on your business, we will analyse in numerous ways; days of the month/week/day/hour, fee-earners, staff members, geographical areas, product, service, seasonality trends and so on. This will not only support profitability and decision-making, it will also validate target setting, projecting sales income and forecasting, all of which can be evidence-based.
Cost of Sales/Delivery. This isn't just a financial transaction – the cost of buying good against the selling price. For most businesses this is inaccurate especially in bespoke service industries with numerous ‘hidden’ activities which are neither costed out and then added to the original cost of sales. Each and every previously hidden transaction needs to be allocated a £ value and added to the cost of sales. If businesses fail to accurately understand their cost of sales the will also fail to place an accurate price or value on their goods or service and consequently, their ‘perceived’ profit will also be inaccurate.
Overheads. These are fixed costs for the business and ensuring an accurate figure per year/month/week is key as these are business costs regardless of the business has customers or clients. Understanding overheads, both one-offs and reoccurring reinforces the importance of reviewing these costs as well as driving a clear message about lost opportunities.
Approaching investors unprepared is probably the single biggest reasons why entrepreneurs fail to secure funding. One area that is key is understanding your profitability and the figures in your business plan. If you cannot demonstrate that you have a really firm understanding of your commercials it is likely that an investor will turn away.
At jkc consultancy we will help your understanding of business ‘as is' as this will give you a strong foundation. You should be able to articulate your business journey and explain how you arrived at each and every number. A strong foundation will be based on your income, cost of sales or delivery and overheads.
We can now move onto planning business ‘to be’. Our modelling tool delivers bespoke profitability scenarios which might financially impact on the business going forward. These include fluctuation in sales, costs of sales, impact of price increases or discounts (when all other costs remain the same), and the impact of overhead costs. It can also show the impact when two or three happen at the same time, in either direction (up or down).
There are multiple benefits to this but all come back to the same valid points; decisions can be evidence-based on data and therefore more accurately risk-assessed thus supporting sustainability and/or business change.
The evidence of data will:
Business Health Checks
Are you spending too much time 'in' your business and not enough time 'on' your business? This is a very common problem as we are all so close to our businesses. As part of jkc consultancy services we offer a business health-check which will support understanding of your profitability before assessing your next move.
Our health checks are ideal if you are: