You might be profitable, but are you profitable enough?

What does that mean and why is it important? In business the end game is vitally important and that means selling your business and making sufficient profit that makes the effort, energies and risks of being in business worthwhile.

From a prospective purchaser’s viewpoint how much profit you make is the key component of any valuation however the best prices for businesses are obtained from strategic buyers because they want a position in a particular market sector.

Strategic buyers will pay more for a company whose profitability is in the upper quartile of the sector in which they operate and they know where that profitability should be. A question to ask yourself is do you know where your profitability is compared to your competitors?

If not, you need to know and see how you compare against the following criteria,

  • Gross margin as % sales
  • Nett profit / EBIT as % sales
  • Overheads as % sales

Most businesses measure their profitability against budget and believe they are doing well if they achieve or get close to budget, but how are you doing against your competitors and how do you sit in the upper quartile. This is called benchmarking and should be used to identify performance gaps in your business against your competitors.

This is important because it will significantly impact the value of your business.

If you would like to know more about benchmarking or how to improve your profitability simply call me.

Simply Business Australia

Philip Coombs “The Profit Coach”

0419 834 678