Managing financial cost in your business could be the game charger. Most businesses and individuals are struggling because they are trapped in debts.
They find themselves borrowing from Peter to pay Paul.
The starting point of controlling your debts is knowing that not most of the problems that seem to be financial are actually managerial.
My business teacher once said all traders sell goods at a profit but not all businesses are profitable.
He was talking about gross profit versus net profit – the two most important measures that define every enterprise.
Essentially gross profit is the money remaining after you subtract purchases or production costs from total sales revenue.
In ordinary situations, every business makes a gross profit. You cannot make a gross loss unless you buy or produce goods at, say Sh100 and sell for less. No one can do that under ordinary circumstances.
On the other hand, a net profit is the money that remains after all expenses and costs have been subtracted from revenue.
Over and above production or purchase cost the company incurs other costs such as staff cost, rent, finance, and utilities. If those costs exceed gross profit the business makes net loss.
It is the ability to manage those costs that determine the ultimate measure of a business
In other words, net profit is a measure of how effectively a company has been managed. Thus in most cases making loss is a management problem.It shows the managers are not able to manage gross profit to cater for all other expenses and leave surplus. That is essentially a management issue.One of the costs that impede business growth and profitability is financial cost of borrowed money. I have singled out this among many others costs because whenever business gets into financial difficulties, and most often do, almost certainly the involuntary thought that comes into the mind of the owners or managers is where to get credit facility.This credit comes with heavy costs such as high interests, strain on cash flow and psychological torture of thinking how you will repay the debt and what could happen should you fail to pay. This impedes your creativity and productivity.Managing financial cost in your business could be the game charger. Most businesses and individuals are struggling because they are trapped in debts. They find themselves borrowing from Peter to pay Paul.The starting point of controlling your debts is knowing that not most of the problems […]
