For a lot of us Q4 is the busiest and most stressful - but also in a lot of cases can be the most lucrative quarter of the year. If you do it right that is. We have put together a Black Friday Sale checklist with some main points to keep you on the straight and narrow this season. Stay within your safety margin, know your breakeven numbers and address the cost of inflation.
Every business owner should know the basics of business:
If you buy something for £10 and sell it at £15 - you make £5 profit.
Unfortunately though a lot of business owners don't know their safety margin, breakeven numbers or even what the phrase 'cost of inflation' really means.
Businesses must be aware and understand the relationship between costs, volume and profit. A business needs to know what the impact on profit will be if there is a change in cost, sales volume or selling price. One of the most important tools in business finance is cost volume profit analysis, focusing on the interactions between the four main elements in the business: Selling price, Variable cost per unit, Sales volume and Total fixed costs.
Analysis of your breakeven figure is generally done using budgeted figures. The term breakeven is the point at which total sales revenue is equal to the total cost and therefore no profit is earned and no loss is incurred. It is important for a business to total the number of units that have to be sold or sales revenue that has to be generated in order to break even. Along with contribution towards covering fixed costs made by every £ of sales revenue.
Margin of Safety
The margin of safety is the difference between budgeted sales (volume or value) and break-even sales. The margin of safety is often expressed as a percentage. The margin of safety expresses how close budgeted or actual sales are to break-even sales. Below break-even the business will incur a loss. The margin of safety is a measure of risk. The lower the margin of safety becomes the bigger the risk.
Cost of Inflation
A phrase that many businesses until now would never have addressed or concerned themselves with. The current rate of inflation is 11%. The rising costs of gas, electricity and fuel heavily contribute to increasing inflation. Your business profit margins are most likely beginning to feel the effects of this - be that through supply chain issues, labour shortages, higher fixed costs and bills.
Your homework: Carry out a business review to check your financial health prior to your BF sale.
Conduct a price audit. A fresh break-even analysis could help you work out whether price increases could lead to better profit margins.
Audit your costs. A fresh look at the business expenses could help you to see if a reduction can be made anywhere.
Refresh your plans and forecasts. As the world changes our businesses need to change with it.
If your still confused or think your going to break the bank with this years BLACK FRIDAY SALE please reach out. We are happy to help.