But…. Where’s my Profit gone?!!?

Profit is what being in business is all about.  It’s what we all work so hard to improve and to grow.  Congratulating clients on the great profit they’ve made so far this year is a highly enjoyable part of what I do.

Invariably though, the next question is: “So, where is it?”


Most business owners understand what the Profit & Loss Statement is and what it shows (albeit to different degrees).  Essentially, the profit figure on your P&L is the end result of revenue less expenses.  It shows how much revenue has come in, what expenses are required to run the business and how sufficiently revenue has covered the expenses.

On the other hand, not so many business owners know what the Balance Sheet is all about nor the essential information that it can tell you.  The Balance Sheet holds a lot of answers about the health of the business and it also shows where the profit has disappeared to.

2 of the usual suspects…

Profit often gets “caught” in a business in a number of ways (good & bad).  Here’s the common 2 culprits of tying up profit in a business:

Debtors: The business may be making great sales, revenue is growing and things look good on the P&L. If the Debtor balance grows relative to the growth of sales, than in most cases the cashflow of the business will track along fine.  However, perhaps insufficient Debtor Management practices are in place and customers are taking too long to pay forcing the Debtors balance to increase significantly in proportion to sales growth.  Slow paying customers and poor Debtor management unnecessarily ties up cash. It’s imperative for good business that invoicing is done both correctly and timely and that a system is in place to routinely follow up customer payments.

Stock: Businesses with stock need to have sufficient practices in place to ensure cash/profit isn’t excessively tied up in stock on hand.  If your stock purchaser is buying overs, or buying the wrong type of stock that isn’t selling or stock that isn’t required, then you are unnecessarily tying up cash in stock that could be used for something else.

If you would like to better understand your Balance Sheet and where your profit may be hidden, please get in touch today.


5 tips to get the best sale price for your business

You need to plan to get out of your business, just like you need a plan to get into business.

There are 3 ways to leave your business:

  1. Sell
  2. Merge
  3. Close

Planning to sell is actually more important in some ways and slightly more complicated than starting up business.  It requires foresight, strategising and careful implementation.

Your efforts will help get the best return possible for all of those years of hard work!!!

Sold 7.3.17 PixabayHere are 5 tips to consider when selling your business:

1)      Sell at the right time for the right reasons

In most cases you’ll get the best result selling your business when sales are climbing and profits are strong.  If you have a history of solid performance it would be a good idea to consider selling before trouble strikes.

On the other hand, if you’ve been through troubled times but things have turned a corner, you may be best to hold onto the business and get things in order to be able to provide at least 1 -2 years of strong performance history before looking to sell.  Remember, prospective buyers will not pay for potential.

External factors which may influence the timing of your sale include availability of financing, changes in tax and other relevant laws, industry changes, the general economic climate and interest rate trends.  How are they impacting your business?

2)      Decide what you’re selling

Determine what the assets of your business are that have value that someone else is willing to pay for.  Selling a business often includes assets such as goodwill, trademarks and client lists/history as well as the physical assets.

If you’re looking to sell to an existing business they may consider your client list to be the most valuable part of the transaction and may not even need to take on your assets.  On the other hand, a stand-alone buyer may need to take over everything required to make the business run.

If your business is incorporated, you also need to decide if you are going to sell your business as an asset sale (where you sell everything in the corporation but not the incorporated company itself) or a share sale (where you sell everything including your incorporated company).

3)      Determine what your business is actually worth

Buyers are interested in profits, not revenue, and cash flow is usually more important than profits when valuing small businesses.

Consider the business’s ability to sell, its readiness and your timing. There are many attributes that can make your business appear more attractive, including:

  • Increasing profits
  • Consistent income figures
  • A strong customer base
  • A major contract that spans several years

There are several different business valuation methods. No one approach can be used in isolation; the current market, economic trends and what other similar businesses have sold for also need to be taken into account.

4)      Make sure your house is in order

Prepare your business ahead of time, preferably at least a year or two beforehand.  The preparation time will allow you to improve your financial records, business structure and customer base to make your business more profitable and appealing to potential buyers.

Even if you decide not to sell straight away, you will personally reap the benefits and ultimately will increase your future selling price = win/win.

5)      Get professional advice

Selling your business arguably could be a bigger event than selling your family home, so do yourself a favour and get professional advice along the way.



Be all over your business like a rash!

Gross profit is a key indicator of your business’s overall health, so keep reading!

Measuring and monitoring your gross profit regularly will tell you a LOT about what’s happening in your business and how you can make more money.

So firstly, what is gross profit?

Gross Profit =

Sales Revenue

Cost of Goods Sold

It’s usually represented as a % of sales.

Generally, the higher the gross profit % the better.

Gross profit can be measured for your business overall and it can also be used on a more detailed level for eg. per product line, type of customer, location etc.

Why is gross profit so important?

Gross profit is the amount of money left over from sales to cover your overhead expenses (electricity, rent, insurance etc).  In most cases your overheads are relatively fixed and there’s not a lot that you can do about them.  Not the same for gross profit!

Measuring and monitoring gross profit and investigating significant fluctuations allows you to know exactly where, how and why changes need to be made so that you can make more money from each sale.

It’s imperative to understand what your most profitable and least profitable product/service lines are. You may use the information decide to stop offering unprofitable lines and/or decide to “push” your more profitable lines in your marketing for example.

What should you be looking for?

Gross profit should remain fairly stable over time.  If it fluctuates significantly downwards it’s an indicator to further investigate for things such as possible fraud, accounting irregularities, mismanagement or perhaps increased competition.  If any of these are the case, it’s obviously best to sort them out ASAP.

If your gross profit fluctuates in a positive way, it could indicate an improved product mix shift, better buying decisions or improved efficiencies.  It’s good to know these things so that you can keep doing them!

So it makes a lot of sense to keep your eyes firmly on your gross profit right?


  1. Determine your overall business gross profit and monitor it regularly (eg monthly)
  2. Determine the gross profit of your individual product /service lines (and even by location, customer type, business divisions if possible) and monitor regularly.
  3. Make an effort not to discount or compete on price. Instead, look for ways to differentiate your offering on another basis eg. turnaround time, availability of support, ease to buy etc
  4. Review your supplier’s invoices regularly to ensure quantities and prices are correct and are reflected in your sales model (know in advance when supplier prices have been pushed up so that you can consider raising your sales price)
  5. Have strong systems in place for stock/materials. If stock goes missing for example or you have a lot of wastage it will affect your gross profit. If reporting is incorrect it will also impact your gross profit. If stock is obsolete or slow to move, then consider dumping it.
  6. Measure and monitor!!!

Use Xero Tracking to “join the dots” and move your business forward

Knowing exactly how your business is performing NOW is arguably one of the biggest keys to improving your business performance in the future.

With the development of cloud accounting, all the information is at your fingertips on a timely basis. You just need to use it!

Case study: Retail shop owner wants to better understand shop sales and usage of employees.

Business owners start to know this kind of information in their head ie how much the shop would generally take on any given day.  However, it’s not much use to anyone up there!

Action: With a few changes to the data entry process, this information can easily be gathered, tracked and then reported on using the xero accounting system.

I have recently set up xero to track “daily shop sales” for my client.  By also using the timesheet function, we can then start to report the use of employees v the revenue brought into the business on any given day.

Benefits: These changes will enable us to see –

  • Which days generally bring in more revenue than others
  • Which days typically require more labour
  • Which (if any) employees are more productive than others
  • How many sales (quantity) were made on a particular day
  • What the average sale was on any given day (and any period of time)

Value: The business owner is now better equipped to determine rostering requirements and potentially save money on days where additional labour is not required, or perhaps schedule time for themselves on those quieter days to conduct any training and work ON growing the business.

Ultimately,  by tracking the $ value of sales, # of customers in the store and the average value of each sale we can also now track the effectiveness of any sales strategies that are implemented.

Worthwhile exercise don’t you think?!

Take Home: What could you be tracking in your business to help you “join the dots” and move your business forward?



Is the Sky Falling in?

With over 15 years experience working with small and medium business owners I’ve had a lot of experience with reviewing new software programs, implementing new accounting systems as well as making sure business owners are using their accounting system in the best way possible for their advantage.

MYOB made a huge impact and has dominated in this area, boosted along by the introduction of the GST and the need to keep more updated records for regular BAS preparation.  MYOB in my opinion, up until the last year or so, suited the needs of the majority of small businesses (even a lot of medium sized businesses) and was more often than not, my first choice.

Harnessing advancements in technology, Xero has entered the accounting software market and is (quickly) changing all that. I’ve been reading with interest the opinions of “those in the know” regarding Xero and cloud computing and the changes to bookkeeping and the accounting industry in general.  To keep up with the latest in what’s happening, I recently attended the roadshows for both Xero accounting software and MYOB, which I found quite interesting (more below).

The contrast between the attendees at the Xero roadshow and those at the MYOB roadshow were clear and paint quite a picture.  There was a lot more colour, a buzz about the place generally and you could go as far to say people were “excited” about the Xero product.  On the other hand, the MYOB roadshow attendees generally were the image that springs to mind when you think “accountant”, enough said.  Generally, most attendees would have walked away satisfied that MYOB is (very) busily working away at updating their product to be more “innovative” and to work more efficiently in the cloud environment.

To be honest, I have a foot in both the Xero and MYOB camps. However, I must say that some of the talk about Xero and the cloud in general, reminds me of the Chicken Little fairytale. Is the sky really going to fall in with these changes?… In my mind these changes are advancements that provide the ability to add increased value to my clients’ business.

The way I see it, the old 80/20 rule springs to my mind. SME’s can cost effectively gain access to improved accounting IT functionality and accountants can harness it to provide real value to clients. Let’s systemise and make totally efficient the routine 80% of the basic accounts/bookkeeping function that is essentially repetitive. Why waste time on that?

What we’re left with then is the 20% that requires greater attention and provides the biggest opportunities to improve the business’ performance. This leads to having reliable reports that: are updated in real-time; are remotely accessible 24/7; and are produced in the most cost-efficient manner. This leaves time and budgets available to be able to implement solutions that will truly make the business better and ultimately, a mindset change. Sounds good to me 🙂

Is your business on an ATO radar? Use ATO benchmarking to find out …

What do you do to keep your finger on the pulse of your business?  A quick check of the bank balance perhaps?  A walk around the factory floor?  Every business owner has their own way(s) of determining how well their business is performing. Successful business owners have a firm grip on how their business is performing and how it should be performing.

As a business owner, it’s always good to get your hands on business benchmarking information for comparison purposes.  Finding good benchmark data is easier said than done though! Compiled from tax returns and Business Activity Statements, the ATO has some basic benchmark data available for small business, and it’s worth taking a look.

The ATO benchmarking data is handy for a couple of reasons.  As well as providing you with an idea of how your business performs against others in your industry and turnover range, it seems that you will also find out if your business is on an ATO radar.  According to the ATO, businesses operating outside their key benchmark range “may be contacted” by the ATO. Useful to know? – yes!

I recently found the ATO small business benchmarks  to be a useful guide for a client of mine (as below). I discovered that the business is performing and reporting inside the benchmark ratio zones.  So just based on this, the business would not fall on an ATO target list. Additionally, labour levels form part of our regular business monitoring, so it’s also interesting to note that my client’s labour levels are less than the industry average (21% v 27%).  And it’s always good to know that motor vehicle expenses are on the lower side of “normal”!

ATO Benchmark Ratio Name

ATO Industry Benchmark Ratio

Client Business Ratio

Labour/ Turnover

21% – 32%



Average Labour




Total Exps/ Turnover

84% – 93%



Average Total Exps




Non Capital Purchases (BAS)/ Total Sales

51% – 65%



Motor Vehicle Exps / Turnover




I recommend that you develop ways of having a strong, reliable “finger on the pulse” of your business.  Why not compare your business’ results against the ATO benchmark ratios and see how your business measures up?  I’m more than happy to quickly run the numbers for your business, just ask!  A small donation to my fundraising page as a token of appreciation would be greatly appreciated.

7 interesting points from the sale of Crust Pizza

There’s been many, many times where I’ve turned to Crust Gourmet Pizza Bars for their help in providing a convenient and delicious, reasonably priced dinner option (peri peri chicken anyone?).  This is probably why I took interest yesterday.  Retail Food Group made an announcement that the chain had been acquired by them, for $24m.

I posted an article on the Small Business Smarts facebook page yesterday because I liked it so much.  Why? Here’s a few reasons:

1. Have I mentioned that I particularly enjoy a Crust Pizza? It’s starting to get me wondering about what’s going to happen to my peri peri chicken Pizza… However, the founders (Michael Logos and Costa Anastasiadis) will apparently stay with the business post acquisition.  So my peri peri chicken pizza seems to be safe (at least for now) …

2. Crust Pizza appears to represent the dream of entrepreneurs in Australia – two guys act on an opportunity that existed in the increasingly unhealthy, cheap (crap) Pizza market, and worked hard to build a booming successful business.  With 116 outlets they negotiate a deal to sell worth $24m. It’s an inspiring story.

3. Based on the figures provided, Crust Pizza was bought for roughly 7 times EBIT for 2013.  In my experience, not many business owners achieve an EBIT multiple as high as 7 times EBIT! It’s a pipe dream for most really … So this is interesting…particularly if we consider this in respect of the current economic conditions.

4. “A year from settlement it will also pay an amount representing the difference between seven times the Crust EBIT less the $24 million in the initial tranche”. As reward for their commitment in staying on, Logos and Anastasiadis will be rewarded for managing Crust through a smooth initial transition.  I wonder how likely is it to achieve this reward?

5. During recent “tough times” there’s been money to be made in pizza, pastries and donuts! As Retail Food Group has experienced seven years of annual profit growth, even during the global financial crisis.  Apparently households are choosing to spend more discretionary income on cheaper food items instead of more expensive hospitality and entertainment options. All up, this gives RFG 1,350 outlets across its divisions including Donut King, Brumby’s Bakery, Michel’s Patisserie, Esquires Coffee Houses and Pizza Capers.  Hmmm … I wonder how the health statistics are looking?

6. RFG is experiencing the benefits of strategically managing for business growth and profit drivers.  RFG knows where the business is at now – “low-cost offerings” and how they want to expand the business – “high ATV (average transaction value) lunch and evening meal time opportunities”.  There’s “take-away” value for all business owners here! Where’s your business at now, where do you want it to be, and what’s the plan to get there?!

7. Finally, and I’m not going to apologise, I just love seeing the numbers.  Especially when they’re this positive.  Adjusted revenue for RFG increased 20.3% to $100.6 million, while EBIT reached $47.5 million for this year. Net profit after tax reached $28.5 million.  That’s 28% net profit after tax people! A goal most small business owners would aspire to achieve!

What are your thoughts? peri peri chicken pizza anyone?! 🙂


The material and contents provided in this blog are of an informative nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.

The original article was “Retail Food Group posts record profit, swallows former Smart50 entrant Crust Pizza for $24 million”.Thursday, 23 August 2012 11:32 Patrick Stafford on http://www.smartcompany.com.au.