Businesses exist to make profits, but businesses that don’t understand expenses face a hidden obstacle to realizing profits.
List all company expenses – monthly and infrequent expenses. Not knowing all expenses can paint a false sense of profitability.
After listing all expenses, determine the amount of income and what customers brought in what percentage of income.
For example, there is a single owner packaging business in Southern California that has 30 clients. About 80% of the business comes from 12 – 15 customers. His client base stretches from Orange County to the San Fernando Valley.
The owner does well keeping up with his most profitable clients. But because he finds it easiest to spend time with them, he doesn’t get out to generate new business. The other 15 or so customers keep him busy but are they helping him reach profitability? If not, the owner needs to evaluate why the additional customers aren’t bringing in more business. Has he not asked? And is it outside his comfort zone to generate brand new accounts.
Do you know your expenses or have a good idea of what they are?
If not, set aside the time to write them down and review receipts to get a handle on cash flow for your company.
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