The Main Purpose of Your Bookkeeping Services
When you go to business school, they teach you to control costs and increase revenue. It's a no-brainer right? What they don't teach you is how to deal with the emotion behind cutting costs. As a business owner, it's easy to get emotionally attached to your overhead. There may be employees that you've become friends with, services that you don't need but have come to enjoy and a host of other sticky situations.
I have seen business owners go down with the ship too many times because they can't seem to cut out the emotion and look at the numbers. That's where we come in. A bookkeeping service has no emotional tie to your costs. You have hired us to handle the money and work with you to build a better business. I just got out of a meeting today with a client, and I had to tell him that he should lay off a member of his admin staff. He had a really hard time with it. Over the years he has come to rely on the person. Unfortunately, the figures simply didn't make sense for the organization as a whole.
Let's look at the numbers...
He was paying the employee nearly $3,100 a month in wages and taxes. Here is the kicker though...that's not what this employee really cost the organization. Since the employee was a complete overhead cost, you have to consider your margins as well.
The company has a gross margin [(Revenue - cost of goods sold) / Revenue] of 45%. This means that for every dollar they generate in sales, they get to keep 45 cents to pay for overhead which includes the employee in question. To see the true impact of the employees wage on the organization, you divide the cost by the margin. In other words, $3,100 a month in wage / 45% = $6,889.
The company has to sell $6,889 in products to pay for their $3,100 a month employee. [box_light]All of the sudden, it became very apparent to him that some tough decisions had to be made.[/box_light]
Why it matters
Running a business is tough. Let's not lie about that at all. At the end of the day, you have a family to provide for and employees that rely on you. You need to separate yourself from friendships and associations long enough to look at the numbers. Do the numbers make sense? Do you have too much overhead? Turn to your bookkeeping services for help on answering these questions because you will live or die by the answers to them.