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The Sales Numbers Look Great but You Can’t Afford a Vacation? When Sales Success Does Not Equate To Profitability

As a profitability advisor I am often approached by manufacturers who have this problem, they have lots of sales but very little gross profits and are wondering why?

Here’s an example of how a manufacturing business might be losing profits:

Smith is the owner of a cabinetry company that is still relatively new. Over the past five years that he’s been in business, Smith has been able to continually increase his total sales and client base through aggressive and innovative marketing.

Money Leaking Out

Despite this success he had been unable to increase his profits, he was barely breaking even and didn’t know why. Until one day when Smith heard me speaking about this very problem with manufacturing businesses on my radio show, he immediately called me and said “I just can’t figure out why all the money is slipping out of my hands?!” We needed to find the cracks in his business and discover where his profits were leaking out from.

More Than One Issue

After a thorough analysis of Smith’s cabinetry company it became clear that his company had four main issues; First, John was a manufacturer who was lacking any adequate cost systems. Secondly, the costs his company was generating were not only out of control but not being properly tracked, this was shrinking his profits twice as fast! Thirdly, he had inefficient job scheduling that had little to no focus on job prioritization. Finally, Smith’s company lacked regular gross profit analysis and reporting. He only had a part-time bookkeeper that kept the receipts but was never asked for such reporting, mainly because John didn’t know what to do with them. Through our work together, I showed him the important information and reports to keep his attention on. In a short amount of time, Smith was now able to read and interpret his own numbers.

An End To Lost Profits

The analysis and stopgaps we implemented led to an increase in Smith’s profits by 25%. This was the biggest profit return he’d seen in 5 years of his business. Additionally, he now had the systems in place to properly monitor and review his profits in the future.

 

If you’re interested in improving the profitability of your business, connect with me on LinkedIn https://www.linkedin.com/in/fsilveiracpa or email me at filomena.silveira@bgdgroup.com or call at (905) 361-8698.

Disclaimer: The content of this blog does not reflect any client specifics but is a story based on a compilation of various client experiences.

Leader

Filomena Silveira

CPA, CGA, LPA
Partner, Assurance Services

Filomena Silveira

(905) 361-8698

filomena.silveira@bgdgroup.com


Filomena is an Assurance & Advisory Partner at BGD. She is a Chartered Professional Accountant with over 20 years’ experience, servicing clients across a range of industries, such as consumer packaged foods, construction & real estate, manufacturing, mining, retail and professionals. Her diversified and extensive experience includes leading projects at a national Canadian grocery and […]