October 28, 2019
- Trim your overhead.
- Know the true cost of labor.
- Shop around and compare.
- Analyze if it is better to rent or buy.
- Think outside of the job.
- Sweat the small stuff.
- Add an extra team member by automating job functions.
While all these points are valid, I would add one very important secret to the list:
- Focus on profits.
Most business owners focus more on productivity and revenues than profits. They mistakenly think that if they make more and sell more, they will earn more. That is not always the case. It will cost you more in overhead, labor, and materials costs to produce more goods. You might have to hire more employees or add a second shift to meet production demands. If the cost of goods sold was $50 per unit before you increased production, and you produced 1,000 units, it would cost you $50,000. If your costs increase to $55 per unit as a result of increasing production and you produced 1,500 units, the cost would be $86,500. You are paying $36,500 for an additional 500 units. The extra 500 units are costing you $73 instead of $50 or $55, depending on the situation. Furthermore, if your selling price is $65, you are losing $8 per unit or $4,000 by working harder to produce more.
Thera are other scenarios like this one which should be considered before making any change in your business practices. What might make perfect sense, could really cause you to earn less money.
Feel free to contact any member of our team to help with a cost benefit analysis for any decision you’re re considering at 610-828-1900 (PA) or 732-341-3893 (NJ). You can contact Rich Higgins. CPA, managing principal – New Jersey office at
or me at
. We are always happy to help.
Martin C. McCarthy, CPA, CCIFP
McCarthy & Company, PC
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).