Monitoring your business income
Have you had a conversation with your accountant about how to monitor your income?
Every business has different forms of income which are driven by certain things. I.e. number of products sold and the price of that product.
What drives your business income?
Your business income is a product of the number of units you sell and the price at which you sell it at.
For example, for a shoe company, it would be the number of shoes multiplied by the sales price of the shoe.
For a consultant, it would be the number of consulting hours multiplied by the price per hour.
Where do you start in monitoring your business income?
Monitoring cannot start before you have a plan called a budget of how much income your business needs to make.
This will involve determining how much you need to sell at what price. If you sell more than one product, then you will need to determine the mix of products and prices you need to sell.
Your accountant can help you with this calculation. You need to determine the minimum level of sales required to cover your expenses. This is called the break even point. Once you have this minimum, you need to monitor that sales don’t fall below that level.
Now, we’re not in business to break even, we want to make profit and grow, right?
To do that you need to be able to assess with the help of your accountant with super powers, which product sales make you most money and that means you need to market those products more than any other products.
How do you monitor income now that you have a budget?
1. Manually
This involves recording either daily, weekly or monthly the number of units sold and the price per unit.
2. Using technology
If you have a computerised system to run your sales, like a point of sale system or even an accounting system through which you create and send out invoices, you should be able to extract a report at the end of the month that gives you unit sold and price sold at.
At the end of the month, you or your accountant should be able to compare the actual result with the budget.
This will give you the sales variance, which is basically telling you if you sold less units or you may have sold more units at a lower price, etc.
From your sales variance, you will be able to identify where the problem is.
If sales are low – you will need to investigate further first. There
Your business income is not performing according to plan. What to do next.
There could be a few reasons why the numbers are low.
- People don’t know about your product – you will need to invest funds into marketing.
- Your customers are not getting good service either during the sales process or after it
- Product performance is not as it should be – you would know this if you’re getting product returns and complaints about your product.
There may be other reasons and we strongly recommend having a quick review mechanism that the customer can use to give you feedback on how your product is doing and how they feel about your business.
This review will give you the information to improve on what you’re doing well and rectify and address what isn’t going so well.
How can we help?
We recommend that if you don’t have a sales budget already, you invest the time into creating one. We are always available to assist you with our expertise.
Enquire about our tailor made packages to suit every stage and size of business and let’s get to work with you on your business!
Get in touch with us by sending an email to hello@santosbiz.co.za or Book a Call with us now.
