<p>More sales? Who needs more sales? I bet you think you do.<br /><br />Everyone knows times are tough - especially small business owners. We're all scrambling to succeed.</p>
<p>Here's something everyone doesn't know: More sales may not be what you need to survive Come with me as we take a trip down a typical income statement to see what I mean. Here's last year's income statement for the fictional Joe's Computer Repair:</p>
<p>&nbsp;</p>
<ul>
<li>Sales $950,000 100%</li>
<li>Cost of Sales $522,500 55%</li>
<li>Gross Profit $427,500 45%</li>
<li>Compensation costs $190,000 20%</li>
<li>Other overhead costs $256,500 27%</li>
<li>Total overhead costs $446,500 47%</li>
<li>Profit (Loss) ($ 19,000) -2%</li>
</ul>
<p>&nbsp;</p>
<p>Let's assume that sales are down 10% from the prior year.</p>
<p>You can see that Joe lost $19,000 last year, and like most small business owners his first instinct is to regain lost revenues. Not a bad goal, but if that is Joe's singular focus, he may be missing opportunities and leaving money on the table.</p>
<p>While doing what he can to restore the sales, why not also look elsewhere for financial improvements? Let's start with Cost of Sales.</p>
<p>Most of the cost of sales is direct labor expenses, but some comes from the parts used. If Joe can reduce cost of sales by just $9,500 - by getting his repair team to be more efficient and working out a better deal on parts costs - Gross Profit goes up by that same amount.</p>
<p>Now to compensation. Joe has 11 full timers. With sales of $950,000, that comes to about $86,000/employee. Sales/FTE varies by industry, but in general, anything much below $100,000 is cause for a closer look. With the dip in sales, Joe may have to reduce hours or even headcount. Getting down to 10 FTEs would put him at $95,000/FTE - a significant improvement. This is an important measure that deserves attention. For this example, we'll<br />leave Joe's compensation costs alone as there are enough real layoffs without me piling on fictional ones.</p>
<p>Regarding overhead costs, can the team brainstorm on ways to cut costs and reduce overhead spending by just $12,000? If so, here is the new income statement, reflecting the improvements:</p>
<ul>
<li>Sales $950,000 100%</li>
<li>Cost of Sales $513,000 54%</li>
<li>Gross Profit $437,500 46%</li>
<li>Compensation costs $190,000 20%</li>
<li>Other overhead costs $244,500 26%</li>
<li>Total overhead costs $434,500 46%</li>
<li>Profit (Loss) $ 3,000 +0.3%</li>
</ul>
<p>At just better than breakeven, it's a start and beats the heck out of a loss. All with the same sales. To get that same bottom line result solely by growing sales, Joe would have had to increase revenue by almost $50,000 at 45% gross profit!</p>
<p>So, what can you take away from this admittedly simplistic example?<br /><br />&bull; You and your people should look for improvements in every nook and cranny of<br />your P&amp;L<br />&bull; Small percentage changes can make all the difference at the bottom lin<br />&bull; If you don't know your numbers, you can't manage them</p>
<p><br />Now, go sell something!</p>