- Understanding the Accredited Investor Rule 501 of Regulation D - February 27, 2024
- Which is Best – Business Broker, M&A Advisor, or an Investment Banker? - October 2, 2023
- How To Find A Business On Sale - August 16, 2023
This post is intended to help business owners recognize, first and foremost the source of the PROFIT in their business. Many are shocked to learn that most of their effort and headaches are derived from servicing the least profitable segment of their business. Sad but true.
Before we attempt to determine the correct, or optimal, minimum order amount, a business owner needs to first determine where the profit is coming from.
There is simple and enlightening way to do this, especially if your financial records are kept on QuickBooks®.
Start by looking at where your business, in terms of gross revenues, came from in the last twelve months. Start at the top and list your Customer or Client that produced the greatest gross revenue and then follow that up with the next, and then the next, etc. until you have exhausted your entire list.
If you use QuickBooks®, it is easy to get this information. Go to:
- SALES BY CUSTOMER;
- Select the period to measure—One year is a good timeframe for this exercise. Place the twelve month period in the “To” and “From”;
- Select SORT BY TOTAL;
- Select Z TO A (the default is A To Z).
This report will provide a summary of a company’s gross sales dollars by Customer or Client from the Greatest to the Least. Take a look and you may see that many of your headaches are related to servicing the names on the bottom of this list.
This is the first, very important step that a business owner must take to understand their company’s profitability—and the possible notion that they may be leaving money on the table as a result of their company’s minimum order policy (or lack thereof!).
Our next post in this series will address the next steps in this analysis by introducing the 80/20 Rule also known as the Pareto’s Principle (or Law).