FM Walsh & Associates Inc.

In the current economy business owners are taking a look at their financial operations and wondering what they can do to boost their bottom line.  Very few small companies realize that doing cost accounting is a key contributor to being profitable - they just see it as a painful exercise.  I have invited accounting expert, Dayna Holland, to provide us with expert advice that small business owners can put into action immediately.  Look for her articles here over the next 4 Thursdays.

 Recently, I’ve been working  with a retail company to help them get their financial records “in order”.  To me, “in order” means that once I’m done, my client will be able to understand from a dollar and cents point of view how their business is doing.  One of the key tools that I provide them with is how to figure out which products are the money-makers and which ones should be dropped from their product line. 

In order to do that, I’ll need to gather the following information: 1) Cost per unit; and 2) Shipping charges – incoming and outgoing. These would be the direct, variable costs for their products.  I’ll also need to gather information such as 1) storage/warehouse charges; and 2) packaging costs.  These would be their direct fixed costs.  

Once all of this information is gathered and measured against the sales by product line, my client can see which products are the money makers and which products they could be losing money on.  It’s a simple process, but at the same time, when you are in the thick of it as a business owner, it’s hard to find the time to actually do this.  And if the cash is coming through the door, and the products are moving, you basically feel like your business is doing well.  Not always.

If you’re basing the success of your business solely on volume, you may find at the end of a year that you’ve actually lost money because you’re selling your main product at a loss.  No wonder your products are moving fast! 

And if you’re basing your success on the number of dollars you bring in, you may find that you may be profitable, but your warehouse is full of items that have been sitting there since the day you opened your doors.  Now what?  Those old products aren’t moving and you need more storage space for your new orders. 

By understanding and monitoring your costs and your revenues by product line, you can run a better business. Not only will you be able see which products are giving you a higher margin, but you can also start to see which products move the fastest, which products you may want to raise your prices on, and which ones need to be marketed better in order to get the inventory moving. So make sure you find the time or the expertise to do this kind of analysis - it will make a huge difference to your profits!

Dayna Holland is a Chartered Accountant whose mission is to make numbers and taxes less intimidating to business owners.  Most of her career has been working with various High-Tech and telecommunications companies to minimize their tax burden.  Now running her own company, she currently works with a variety of businesses to improve their profitability and handle their taxes.  Please visit her website for more information.