3 THINGS YOU MUST DO BEFORE APPLYING FOR BUSINESS FINANCE Funding and Business Growth Playbook T: 0330 350 3356 @: hello@GrowingYourNumbers.com www: growingyournumbers.com
Gross Profit Margin
What was the Gross Profit Margin for Alex ’s Software Company ? We already know this from the profit and loss detail shown above, it was in the Profit and Loss Statement: Gross Margin this year was 35%, a 1% increase, up from 34% last year.
1% might not sound like a lot, but in Alex ’s case that 1% increase added nearly £10K to the bottom line. Do you know what your Gross Profit Margin is this year compared to last, and what is your ‘direction of travel’?
Just in case, Gross Profit Margin % is easy to calculate:
Gross Margin = Total Sales minus Cost of Sales Total Sales
To be accurate you need to be sure your ‘Variable or Direct Costs’ and your ‘Fixed Costs or Overhead s ’ have been correctly categorised and recorded in your accounting system. If you need help with this your accountant should be able to help you ensure your Bookkeeper is posting costs correctly. As with all Management Information, Rubbish In = Rubbish Out, the Bookkeeping must be right.
Note: Cost of Sales is also referred to as the Direct Costs or the Variable Costs, these are all different terms for the same thing.
Do you continually look for ways to increase your Gross Profit Margin? If not, you should because this is normally the easiest and certainly fastest way to improve the financial performance of your business.
Overheads
Even if the company makes no sales, how much does it cost Alex to run the business? The Overheads don’t change regardless of sales. We can see above, Overheads this year were £271K, down from £281 the prior year.
Do you know what your overheads are going to be this year, what were they last year?
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