In every business for every £1 made in Sales only a small % is yours to keep. This is because there are direct costs incurred when making each Sale. For example, you may have to pay direct labour, direct materials, bank charges etc.
So, for that £1 in Sales your business may only see 50% or 50p (for example) and that 50p must now contribute towards your overheads. Accumulate enough 50p’s and you make a profit on your bottom line.
But if you were to cut your overheads by £1 you are actually adding 100% of that onto your bottom line profit. So for every £1 in overheads, you have to make £2 in sales at a 50% profit.
Accountants are always cutting costs
Accountants are always getting blamed for being penny pinching and always looking to cut costs. And there is some truth in that, mainly because we are acutely aware that overspending will lead to a business’s downfall.
Long term, a business can only support an overhead that the sales will allow. If your sales have dropped off, then the overhead will have to be reduced to ensure the cash and the profit in the business can be sustained.
I have yet to meet an accountant who doesn’t like a business to invest and grow especially when there is a business case to do so.
Credit where its due, this government have supported businesses throughout the pandemic and many more would have closed or would have made redundancies, if the Furlough and other schemes were not made available.
When these schemes are removed later in the year if sales haven’t come back up, then some hard decisions are going to have to be made.
How we can help
We can help by making sure your Xero represents exactly what your overheads are, and you can see your bottom line profit. We can also help you calculate your break even point (the amount in £’s that you have to sell each month to breakeven)
We can help by spending time with you to set a budget and showing you the Xero Budgeting tool – The Benefit Of Budgeting Xero -Features Explored.