Strategic development and effective profitability management are crucial factors for the success of any business in the contemporary business environment. With increased competition and continuous economic changes, the need for strategic development combined with effective methods of monitoring and improving profitability is more relevant than ever.
The most direct ways, and those that will reflect the real situation of a business, are the Gross Profit Factor and Net Profit Factor. What are gross profit, operating profit, and, of course, the coveted net profit? What each one entails briefly:
Gross Profit: Gross Profit: Sales – Cost of Goods Sold
Operating Profit: Sales – Cost of Goods Sold + Sales Expenses + Administrative Expense
Net Profit: Net Profit: Sales – All business expenses.
From the above, gross profit and net profit are what every business owner should be concerned about. Let us not overlook the fact that even tax offices use exactly the same method to initiate audits.
If the audits are not satisfactory (there is a specific table from the Ministry that determines the minimum levels), they will proceed with an audit.
Every business owner should conduct regular checks of the above indicators at regular intervals for the following reasons:
• If done regularly, there are comparative data between periods where information on emerging differences is crucial, making it easier to understand what is going well or not and what needs to change.
• Knows the real picture of his business in a timely manner and can make correct and effective decisions about its course.
• Controls his available finances.
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