Tips and Updates
|Posted on 10 March, 2014 at 10:00|
Starting a new business is exciting, exhausting, frustrating and fulfilling.
You have goals and plans.. but what you don’t have is historical information.
You can’t compare if your direct costs are less or more than last year or if your net profit is going up or down. In fact, you may not know what is a reasonable net profit to shoot for.
You know more is better but how much can you really expect to make?
Let’s say you have just opened a wonderful bakery, sales are going well and you are getting into a flow with your daily production.
You know you can make money but how much? The owner of the bakery around the corner probably won’t tell you and even if you have some mentors in the industry they may not be able to give you accurate data about their gross and net profit percentages.
Why? Many, many business owners don’t even know what those figures are. They know if there is money in the bank account, they almost always know if sales are up or down but gross margin? Net profit before taxes??? Isn’t that what their accountant tells them at year end?
Profitable businesses have owners that keep a close eye on gross margin, they look at industry numbers and measure their business against those figures.
After all its hard to hit a target if you don’t know what that target is.
So, where do you get those numbers? Industry Canada! They have all sorts of info and it can be broken down by industry, area, sales volume and more.
They have a Benchmarking Tool Report that can give you loads of info and you can even include your information for comparison.
But let’s go back to our new bakery.
In BC in 2011 ( the most recent figures available) there were 234 bakeries with annual revenue between $30,000 and $5 million. 68.8% of those businesses were making a profit .
So let’s take a look at the smallest businesses. These businesses are 25% of the industry with annual revenues of $30,000 to $108,000 . They are selling $96 – $346 per day, assuming they are open 6 days a week.
Their average gross profit is 64.3%, the industry average is 44.9%. Their net profit is 10.1%, the industry average is 2.7%. Wow, smaller seems better. If I dig a little more I see that the wage costs are noticeably lower in this group so I suspect that many of the smallest bakeries are owner operated and the owners are taking a low wage or a combination of wages and profit.
The cost of purchases and materials ( in other words, ingredients) for the industry is 38.4 %, for the smallest businesses 30.3% .
The next group up of businesses have with annual revenues of $109,000 to $298,000 . They are selling $350 – $955 per day, assuming they are open 6 days a week.
Their average gross profit is 61.8% and their net profit is 10.1%, still better than the industry averages.
The cost of purchases and materials for this group is 32.6%.
You can compare rent, advertising and any number of other expenses. You can look at sole proprietorships only or incorporated businesses only. You can look at the biggest companies or the smallest companies.
This kind of information can help you set realistic goals, consider what areas of your business may not be running as efficiently as possible, even set an advertising budget.
If mining this type of data sounds like torture to you, ask your bookkeeper or accountant to help you or request a customized report from me.
Categories: Small Business