Your profits are a big indicator of the success of your business. All the hard work and effort you’ve invested can be measured by the profits on your balance sheet. So it can extremely disheartening to see those profits disappearing.
Just where are your profits going? And what can you do to improve your profitability and start making your Profit & Loss account looking a lot healthier?
Get in control of your numbers
Control is the key. If you’re not in full control of your finances then you’re not going to be profitable. It’s as simple as that.
You need to have a great overview of your cash flow, your regular costs and any visibility of any issues around late payments or outstanding debts.
Track your profitability
If you aren’t tracking profitability, you don’t know how to fix it.
You need to have a system in place to track your sales income, measure it against your targets and see how and why you’re not making the profits you expected to.
This tracking needn’t be complicated – it could be a simple Excel spreadsheet – but the more adept your system is, the more detailed your data will be. And drilled-down detail gives you a much better indication of any problems.
Naturally we’d recommend something much more visual than an Excel spreadsheet: we use Spotlight Reporting to design custom reports that will show you just what you want to know about your profits (and nothing that you don’t). More on that shortly.
Common reasons for losing profits
The specific reasons for a lack of profitability will vary in detail from business to business. But there are some common reasons that apply whatever your business.
- Too many people on the payroll – Taking on too many employees, when you don’t have the revenue to cover the increased payroll bill, will eat into those profits.
- Getting your pricing wrong – Set your margins too low and you won’t cover the cost of the work. Set the price too high and you may not win contracts, so your cash flow suffers.
- Having inefficient processes or systems – Inefficiency hampers productivity. So, you won’t provide enough products/services to generate the fees and profits you need.
- Not generating enough sales – This is the most basic issue. If you don’t make enough sales, you won’t bring in enough revenue and your profits will dwindle.
Get more profitable with Xero’s cloud accounting
Not only does Xero streamline your financial admin, it gives you a detailed, accurate and up-to-date view of your profits and cash flow.
Live bank feeds show your business account balances, alongside a clear, visual dashboard showing your sales invoices, outstanding bills and expected cash flow.
This detail puts you back in control. And because these are real-time figures, there’s plenty of time to act on profit-draining issues before they become bigger problems.
A deeper view of your business information
Xero is brilliant central hub for you financial management. But you can become even more efficient by adding Xero Add-on reporting and financial intelligence plug-ins.
Spotlight Reporting helps your business gain insight, increase performance and achieve results. And it does this by providing a range of reporting, forecasting and information dashboard functions to your existing Xero system.
We can help you set up Spotlight so it’s specifically tailored to your business and your industry sector. So you’ll have the right numbers to hand to improve your focus on profit (and minimising losses).
Attend a Xero training workshop
We’d love to tell you more about how Xero and Spotlight Reporting can improve your profitability and boost the long-term success of your business.
We run regular Xero training workshops where we explain the benefits of the cloud approach to business management.