What happened to the margin?
As the Owner of the Business, have you created the expectation that you should be good at everything – the operational and technical stuff, sales and marketing, business development, managing people, IT and be responsible for the budget and make financial decisions?
Or is it just that as the Owner you are reluctant to let go?
I don’t know about you, but I am overwhelmed. I am trying to be all of these things, and have got to the point of realising that I don’t have either the capacity to do all of these things or the capability! So I am asking for help. Reaching out and getting advice on the bits I know are not my area of genius- in my case the “front end” marketing side of things.
Whatever your genius is, it takes a courageous Leader to admit they don’t understand a certain aspect of running the business and ask for help.
Understanding the Gross Margin
Let me share a secret with you. You’re not alone.
Financial management is only one of the fundamental skills of running a business.
I was just chatting to an accountant who told me about one of their clients whose gross margin started to slip. The client initially wasn’t too concerned and didn’t have any explanation for it. Nine months later the gross margin had slipped really significantly but they still had no idea why. Eventually when the client got around to looking into it, they discovered that one of their employees had been stealing cash from the till. Over the course of several months this amounted to ~$40,000 in lost earnings. An expensive lesson.
Are you looking at your accounts closely enough to spot that the margin is gradually eroding? If so, would you know why?
Why is Gross Margin important?
The gross margin in the business is usually one of the critical numbers of how your business is performing, and therefore can be the earliest clue that things may be slipping, adversely affecting the profitability. In today’s environment of continuing escalating costs, I would suggest if you are in wholesale, retail, manufacturing, construction or services supply you will be watching your gross margin like a hawk.
What else should I be looking for in my accounts?
Find out how to read and understand the profit and loss account and balance sheet
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