Know Your Numbers: Drilling Down on Your Margins for Small Business Success

You can’t manage what you can’t measure. - Anon

In the world of small business accounting, gains are often found at the margins. Those small, incremental improvements can significantly impact your bottom line over time. Whether it's a single project, a specific product or service, or a particular geographic area or customer type, understanding your margins is crucial. By drilling down into your sales and margins, you gain valuable insights into which parts of your business are thriving and which need improvement.

Measure your margins with these steps:

1. Use real-time, up-to-date data

Ensure you’re using a cloud-based cashbook system with daily data feeds from your bank. This approach keeps your information current and accurate.

2. Dissect Your sales

Determine the best ways to break down your sales data. Consider analysing by product or service line, product groups, salespeople, or regions (including online vs. in-store sales).

3. Capture sales data accurately

Record sales data by the chosen categories at the time of sale or invoicing. Adjust your account codes or use reference fields to ensure accuracy.

4. Track direct costs

Use an inventory or time recording system to capture direct costs. If you sell a mix of labour and materials, ensure both types of costs are accurately recorded.

5. Compare actual results with your budget

Regularly compare your actual results with your month-by-month budget. Aim to do this at least monthly.

6. Benchmark against industry standards

Compare your results with industry expectations. Access benchmark statistics or collaborate with similar businesses to share and compare results. This could involve online meetings with non-competing businesses in different locations or local industry-related gatherings.

7. Seek expert feedback

Consult with experts, such as your local Nelson accountants at Malloch McClean, to improve your margin reporting. We can offer best practices and insights from working with many businesses like yours.

Understanding where you currently stand, with all its imperfections, is the first step toward improving your results.

For expert advice and support in small business accounting, connect with our experienced team of Nelson accountants today. We’re here to help you achieve greater clarity and success - let’s talk!