Outsourced CFO | Are You A Small Business and You Need A Leg Up?
Outsourced CFO | small business financial literacy
Businesses donít understand how much money they need to make in order to cover their overhead expenses explains outsourced CFO. Often the end up underestimating how much they need to sell in order to just keep the lights on. By helping business owners learn how to read a balance sheet, they can learn how to figure out how much money they need to make, that is how many products they need to sell in order to reach that break even point. By understanding margins and expenses within their business, businesses can make decisions that will help them be successful.
The first thing businesses need to understand is how to appropriately set prices. In order to do that they need to understand what their expenses are. General and overhead expenses says outsourced CFO are the expenses in the business that donít change, and is not directly related to the cost of sales. Those that are not related to the cost of sales include the rent in their building, utilities, administrative staff, phone bills, office supplies. These expenses say the same month-to-month, and are not dependent on how much or how little the business sells. So therefore the more products business sells overall, the greater their margin can be.
Direct costs that are not included in overhead and general expenses are the costs that are directly related to producing the products and services that a business sells. For example supplies needed to produce the product is an example of a direct expense. If it is a printing company producing business cards, paper and ink would be considered direct costs explains outsourced CFO. Itís possible to save money on supplies, however this is the expense that does change with the number of products that are sold. The more products being sold, the higher the direct costs are.
Now the business owner understands their costs, and how to increase their margin, they need to understand how to set their prices to ensure they are not only breaking even, but turning a profit. An example of this would be a business that has $20,000 worth of overhead, and a 25% margin would require $80,000 in sales just to break even. How we get that figure is with a 25% margin, which means for every four dollars the business brings and, the profit that business is one dollar. In addition to using the income of the business to break, business owners also needs to get into consideration any bets the business has. If they have to pay back the loan, or pay back the shareholders loan, then there break even point is even higher explains outsourced CFO
So hereís how business owners can use understand expenses and margins to set prices in order to not only break even in their business but, turn a profit. Once business owners are turning a profit, they can be sure that they will be more successful in business than the 50% of businesses who fail within five years.
Outsourced CFO | Small Business Financial Literacy
Intuit, the makers of QuickBooks surveyed several small business owners and tested them on some basic financial literacy questions explained outsourced CFO. Over 82% of all the businesses tested, scored less than 70% on the test. By helping business owners understand their own business finances better, businesses can beat the odds over the 50% of all businesses that fail in the first 5 years of their business. The things a business needs to know is what are their expenses, can they change those costs in their business, how to figure out their profit margin and how to use all of these to set the prices in their business to turn a profit.
Many business owners in businesses today just donít know the difference between general and overhead expenses, and as well as direct expenses. General and overhead expenses, explains outsourced CFO, are the expenses that are not related to the cost of sales. Examples of overhead expenses are rent, utilities, administrative staff and office supplies. These costs donít go up when the companyís sales go up. Meanwhile, direct expenses are the costs that the business incurs when they product their products. For example, contractors, raw materials and labor are all direct expenses. The more products they sell, the more raw materials they need to produce those products, and the more labor they need to do it.
Businesses often wonder if they can save money by cutting some of these costs. While itís possible to save money on these items, like downsizing into a smaller or less expensive space. Unfortunately, most businesses are locked into a long term lease, bringing opportunities to save money few and far between. Can businesses save money by saving staff or labor costs asks outsourced CFO. Again, this is difficult to do because the only way to save on staffing is to lay someone off, roll back their wages or cut their hours. This isnít always possible. When most business owners believe that cutting costs can help save their business, itís really just a matter of selling more products. The more they sell, the higher their profit margin will be.
Once a business owner has figured out all their expenses and their margin, they can then go about pricing their products and services in a way to help them achieve profitability in their business. For example, if a business has a 25% profit margin, that means for every $100 they bring into the business, they get to keep $25. So, for a business that wants to profit $20,000 in business needs to bring in $80,000 in sales explains outsourced CFO.
So by helping business owners truly understand balance sheets, profit margins and expenses, they can truly be masters of their businesses fate by using that information to price properly says outsourced CFO, they can increase the profits of their business, and increase their chances of being successful in their business, and beat the odds.