We’ve talked in other episodes about the importance of bookkeeping and accounting. Once you have strong bookkeeping and accounting processes in place, you can use your QuickBooks financial data to make strategic decisions in your business.
In this episode of MissionBusinessPodcast.com, Bernard Roesch explains how to use your financial data to maximize the profitability of your business.
If you have any questions about this podcast episode, please feel free to contact us.
Maximizing Profitability in Product-Based Businesses
In order to maximize profit, in a product-based business, you need to focus on gross profit, not top line revenue. Gross profit equals the sales price minus the cost of the product. By focusing on gross profit rather than sales, you can ensure that you are growing the profits of your business, rather than growing low profit margin sales.
In order to track this in QuickBooks, there are a few things you need to be aware of.
- First, you need to set up QuickBooks to track the costs for each product or each class of product. This enables you to have the data within QuickBooks regarding the costs of various types of products, which you can then use to calculate gross profit.
- The main cost of a product is what you pay to your supplier for that product. But you may also need to attribute other costs to products appropriately such as shipping, handling, etc.
- Once you have this data structured appropriately in QuickBooks, you can use it to track the gross profit across your entire business and across individual product items.
- This allows you to keep your gross profit margin above a certain threshold that you know you need in order to fund other overhead costs in the business.
Maximizing Profitability in a Service-Based Business
A service-based business should still focus on gross profit. But the main difference between a product-based business and a service-based business, is that in a service-based business you’re selling time and your cost is the time to produce the service.
But how do you track the cost of time? There are a few things to consider.
- If you are using a vendor for a project, then they are going to charge you for their time.
- If you use internal team members to complete a project, you need to assign costs for different types of team members involved in the project, so you can track the cost of their time appropriately.
- You can use time sheets to track the time spent for each team member, the client and account they’re working on, and what specifically is being done.
- You can do this within QuickBooks, or third-party tools. Once you have this data tracked within QuickBooks, you can use it to identify the most profitable services, the most profitable clients, etc.
- This allows you to focus your finite resource of time on the most profitable activity in your business.
Setting Up QuickBooks to Maximize Profitability
You can also visit MissionBusinessPodcast.com for more insights that Bernard has been sharing with us in the previous episodes.