Mastering Your Trading Account: A Key to Business Profitability

Hi there fellow business owners,

 I want to talk about the importance of understanding the numbers in your business’s trading account. This concept is vital for assessing your business’s performance and identifying areas for improvement.

Understanding the Trading Account

The trading account is crucial as it tracks your sales, variable costs, and gross profit. It helps calculate the return you’re achieving before deducting your fixed overhead costs. A critical metric to watch here is your gross profit percentage, which shows whether your margins are improving or deteriorating over time.

Tracking Performance Across Divisions

If your business operates across multiple divisions or product lines, consider setting up separate trading accounts for each. For instance, if you have regional locations, individual trading accounts allow you to track the performance of each location independently. This detailed tracking helps you pinpoint areas that need attention and those that are thriving.

Impact of Small Adjustments

Small adjustments in your trading account can lead to significant improvements in your overall business results. Let’s take a look at an example:

• Initial Situation: A food manufacturing company had sales of just over $1,000,000, with a gross surplus from trading of nearly $700,000. After deducting direct costs, their gross profit was $248,749, giving them a gross profit percentage of 24%.
• Strategic Improvements: By working with their accountant, the company implemented strategies that increased their customer retention rate, resulting in a 10% increase in sales. They also reviewed inventory processes to reduce their cost of sales by 5% and renegotiated a contract with a delivery provider, saving 5% on direct costs.
• Results: These changes boosted their gross surplus by $140,251 and increased their gross profit percentage from 24% to 35%.

Key Tip: Regularly reviewing and making small adjustments to your trading account can have a significant impact on your profitability.

Watch the video here where I talk about the Importance of Knowing Your Numbers 

Mick

I’d love to help you achieve your business dreams, please don’t hesitate to contact me;
07 5646 4050
mick@ignitionaccountants.com

 

Book a call  for a complimentary Proactive Accounting Meeting to discuss your accounting profitability