Mar 28, 2011
Ever wondered how much it is really costing you to run your business? How much do you need to sell to keep your doors open, or even make a profit? These are questions that many business owners ask themselves every day. The truth of the matter is that most don’t have the faintest of ideas, and keep proceeding with their business with the expectation that something will change, and their bank accounts will be healthier over time.
Taking a practical approach to the matter, business owners need to ask themselves if they are running a business or are they just an underpaid employee? Surely, if they went to work for someone else they would get paid regularly and not have the headaches associated with day to day business requirements.
To determine if your are running a business you need to be operating in a business-like manner, which is, selling your products or services with view of both a profit AND a salary for the business owner. If you are making just enough to give you a wage, then you are not running a business and would be better off employed elsewhere.
How do I change this, I hear you ask? It’s a simple matter of factoring the profit into your prices. For example, to determine the price to charge for your products or services you need to include the following:
Variable costs (i.e. costs of materials and direct labour)
+ Fixed costs (i.e. Other labour, Rent, electricity, Insurance. Calculate the total figure for the year, and divide by the number of products you expect to sell each year, or hours you expect to bill)
+ Profit expectations (say 20%)
= Price to customers
If you have calculated the figure and find that you will be charging more than your competitors, then you will need to review your expenses, and focus on how you can make your business more competitive by applying better processes or outsourcing in certain cases.
By applying the above formula you can expect to receive a wage, make a profit, and add value to your business.
For further information, please feel free to call David Femia on 9316 4500, or visit us at http://www.femia-accountants.com.au