Q&A: Too much work and going nowhere?
Article Date: Mar 06 2006Q: We’re very busy, always have too much to do, but at the end of the month I’m never sure we will have enough to pay the bills. What am I missing?
Answered by Phil Verity, Mazars
You sound like a hamster on a treadmill. Too much work, but work getting you nowhere. One of the commonest causes of failure for a business is not charging the right price. My guess is that you would do better to take on less work, but try to push up the price, if you can. Price increases drop straight to the bottom line.
The arithmetic of it is quite simple. If you have sales of £100,000, direct costs of £50,000 and overheads of £20,000, your profits are £30,000. Increase your prices by 10 per cent and your profits will go up by £10,000 to £40,000. Compare this with increasing the volume of your sales by 10 per cent. This would lead to an increase in direct costs and the improvement in profits would be only half at £5,000. I’d rather put up prices any day. And even tiny increases in price can lead to a good improvement in profits.
Phil Verity is a partner at Mazars, the international accounting and business advisory firm, and head of the mid corporate market business line.
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