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	Articles Blog Business Financials – 3 levels of Profit Margins Details Published on Friday, 26 April 2024 17:06 There are three different layers of profit margins discussed in financial reports, and they are all found in the Profit & Loss Statement also called Income Statement. This statement details the sales for a specific period, subtracts the cost of goods sold (if you sell products), giving gross profit, and then deducts all general business expenses (overheads) to reveal the operating profit and, ultimately, deducting or adding company taxes plus irregular transactions such as asset such as asset sales or one-off expenses (eg special economic charge) leaves the net profit. In essence, these are the three primary levels of profit or profit margins: Gross profit (after cost of sales deducted from sales/revenue); Operating profit (sometimes given = after expenses deducted) also known as Pretax profit (before tax and other non-regular items); and Net profit (Final profit, after tax and other non-regular expenses and income). Be aware that “profit’, “earnings” and “income” terms are often used interchangeably and refer to the same concept. When discussing margins, it can refer to the actual dollar amount or as a percentage of sales/revenues. The net profit margin is frequently calculated as a percentage (ratio) to gauge a company's profitability over a historical period and compare it to industry benchmarks. *Need help? Not sure? Call for FREE 30min advice / strategy session today!* *Email* *This email address is being protected from spambots. You need JavaScript enabled to view it.* *or call 0407 361 596 Australia* *~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~* Cash Flow tip – Day-to-day Accounting activities – daily weekly monthly Details Published on Thursday, 18 April 2024 08:19 There are essential day-to-day accounting activities or “things to do” to ensure your business cash flow stays healthy and your accounts are in order, daily, weekly and monthly, even if just to check the items that need action. Mostly it comes down to the discipline to keep on top of key practices and good communication with your customers, suppliers and banks. Debtors Before extending credit to a customer, it's crucial to have a comprehensive understanding of their background. Gathering all necessary information about the customer is essential, and for larger transactions, conducting a credit check is advisable. Clearly establish and mutually agree upon the credit terms at the outset of the business relationship. It's important to communicate the payment due date and recipient clearly to the customer, and ensure that invoices prominently display your terms and banking details. While it's beneficial to offer terms that suit both parties, it's advisable to keep the credit period under 14 days. Regularly send reminder statements to follow up on outstanding payments and ensure timely settlement of invoices. Creditors Cultivating strong relationships with your suppliers is crucial. Strive to make timely payments whenever feasible, as this can lead to potential flexibility in credit terms during periods of financial strain. In the event of encountering financial difficulties, it's important not to hesitate in requesting extended credit terms or the option to spread out payments over a period of time. Assess your stock to identify the products that are selling well and those that are not. It's advisable to eliminate slow-moving items and sell them promptly, as holding onto stock ties up your available funds. Cashflow Forecast It's important to consider various scenarios, such as the potential impact of non-payment by your largest customer or an increase in average payment terms. Regularly updating and tracking your financial progress can help prevent unexpected surprises. As an exercise, you can download last year's Profit and Loss statement into Excel, organize it as a monthly multi-period, and adjust for anticipated sales and expense changes for the upcoming year. Incorporate formulas to calculate your cost of sales, gross profit, total expenses and operating profit each month. Additionally, include a line to input the opening bank balance and exclude any non-cash expenses, such as depreciation, to accurately record actual cash flow. This comprehensive approach will provide a clear understanding of expected cash inflows and outflows based on customer history, allowing you to identify potential surpluses or shortfalls in cash. It's advisable to reconcile your bank account on a daily basis to monitor incoming and outgoing payments. Utilizing reliable accounting software with daily bank feeds that are automatically categorized can provide real-time awareness of your cash balance. *Need help? Not sure?* *Call for FREE 30min advice / strategy session today! 0407 361 596 Aust – No obligation!* ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ More Articles... Bookkeeping – How to enter a Chattel Mortgage in your accounts books Business Tip – Success advice of 2 millionaires Business Financials – What is equity meaning in a business & accounting? Cash Flow tip – 5 ways to increase sales in business Business Tax Tip – ATO Record keeping requirements for small businesses Business Financials – Liabilities and Debt - Difference? 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