Financial Advice For Your Small Biz: Are Your Costs In Line?

Couple standing behind the counter at a coffee shopWhat small business owner wouldn’t benefit from financial advice – whether it’s to streamline their company or maximize its profitability?

Some businesses aren’t charging the right price, so they’re leaving money on the table. They may lose sales by setting prices that are too expensive for their customers, or they might see lower profit margins by pricing their products or services too low.

Realistically, your competitors and overall market dictate the prices you’re able to charge. But often, your costs and expenses are the cause of hampered profitability or financial inefficiency. After all, you can’t always pass on your excess costs to your customers.

Given these realities, you’d benefit from having impactful financial advice that addresses your small business’s costs.

How Do You Know If Your Costs Are Too High?

Whether it’s charging the right price or ensuring that your costs are in line, you can’t assess your finances without complete knowledge of your business’s current and historical financial state.

Sound, comprehensive record keeping is essential. Your tax or small business consultant is incapable of providing any financial advice that’s specific to your company without having detailed information about your finances.

Think about it: Any doctor can tell you how to generally treat the common cold. A doctor who has familiarity with you as well as records of your medical history, however, is able to tweak his or her recommendation based on how you’ve responded to certain medications in the past.

If you have good business records, you’re able to understand whether your costs are line by benchmarking against industry reports. Industry resources and vendors often provide this information. Experience within your industry also fosters familiarity with how costs should line up.

Product And Labor: Your Two Biggest, Most Important Costs

The two areas of cost you should always monitor are your cost of product and your cost of labor. These two expense categories have the biggest impact on your business.

Some companies’ product costs are higher than necessary because bulk purchases are not being utilized, while others’ are too high because supplies are in abundance and going to waste (like a restaurant that’s not able to use all of its food before it spoils). Understanding when you need to order new product – and how much – is critical.

How much you pay your employees is sometimes even more impactful to your business, especially if your business is service-based. If you’re not paying the right wages to the right employees, your costs could easily get out of whack.

Some of the toughest financial advice for your small business may be that you need to let certain people go. Seasonal businesses often use more labor in busy months, but if you have the same labor costs in the slower periods, your bottom line is going to suffer.

Finally, it would be unwise to neglect any costs that are solely personal. Many small business owners attribute personal expenses to their company, such as a country club membership. These types of costs simply have to go if they’re eating into your bottom line.

To ensure that your costs are in line, your first step is to know what those costs are – both today and in the past. From there, you’re able to assess the costs and understand if they match up with industry standards. With this knowledge, you’re empowered to cut costs where necessary, streamline your small business and increase your profitability.

Talk to a PADGETT consultant to get financial advice that’s specific to your small business.

Do you have the support you need to manage your small business bookkeeping? Contact us to schedule an appointment to speak with a local small business advisor.