A Gross Profit Approach to Managing and Growing Your Business: What Does This Mean?

As an entrepreneur, you probably find yourself constantly pulled in different directions. This demand on your time may detract you from a very important activity: focusing on the profitable growth (or even survival) of your business.

Does this sound familiar? You know that sales are a key driver of the business so you spend most of your time developing and maintaining them. We’ve all heard that “cash flow is king” and since sales generate cash inflows, it seems like an important activity on which to focus our efforts. But controlling and managing cash outflows are also critical.

There are two areas that affect your cash outflows:

1. Fixed costs
2. Variable costs

In my work with clients, I have found that the financial statements prepared by their accountant for tax purposes may not necessarily be in a format that helps the entrepreneur manage the business. Our approach at the Women’s Enterprise Centre of Manitoba is to segregate all variable costs into cost of goods sold. This enables them to manage the front-end of the business at the gross profit level.

This approach applies to both product and service businesses but requires some minor modifications to the accounting reporting structure. We’ve worked with many clients who have shifted the mindset into a gross profit management mode and have turned their businesses around. The change has given them a better understanding of their financial position and how their decisions will affect the cash flows – both in and out. Once an entrepreneur has this understanding, they are on the road to business growth.

– Maurice McCarthy

My Gold Mine Program for increasing women’s financial acumen