MONEY SHOP Understanding your profit and loss account


In a new series, starting this month, financial plumber David Gummers, advises footwear retailers how to plug the leaks in their finances


W


e are living in tough economic times. I think it is important to remember that most businesses do not go bankrupt because they lack profitability, but they simply run out of money to cover the spikes in their cash flow.


There are, naturally, some costs that you have to pay. These include your


wages, tax and NI, and if you are VAT registered your VAT. These are what I call your mandatory expenses. I am going to concentrate on the other costs, which can be controlled to a greater or lesser degree.


Let’s start with the most important for your business which has to be


your stock. I start from the premise that you have got to have an offer that reflects your target market. I think it unwise to try to be all things to all people. Having established this, my main rule for purchasing is do not carried away. I will NEVER order any product I cannot afford to pay for. That is not to say you cannot take a risk, but only do it within your budget.


Paying within discount terms is a wise money saving tip. The manufacturer


has calculated this in their costs. They want you to pay promptly as this helps their cash flow as well. If you are buying £100,000 and you are getting 3% discount that is £3000-it also helps your gross profit. Negotiating and talking to accounts departments is sensible. If you ever are struggling to pay, let the supplier know-they do not have a crystal ball.


Turning now to the variable costs - the expenses that appear on your


profit and loss account. This is the area where you can save the business £1000s. It does take time but it is worth it. I always meet the bank manager at least once a year to discuss charges. The question on this is are you better having a monthly fixed cost or a variable depending on what you do. I prefer a fixed cost as this helps cash flow.


With online banking and BACS payments you can argue strongly for a


cost reduction as it is you that are doing the work. This depends on whether you are borrowing or not, as you will have less leeway if the bank is doing all the funding. This leads neatly on to credit/debit card charges. This can be a sizeable commission. It is worth knowing whether you take more credit card or debit cards. A 0.5% cut in your credit card charges on £100,000 is £500. A 5 pence cut on your debit card on 1000 sales is £50.


Gas and electricity. You need to ensure the place is well lit and


comfortable for your customers, but being too hot is again a waste of money. This though is not where money can be saved. It is making sure you are on the best tariff. Direct debit, either quarterly or monthly gives you the best deal. For the last 3 years my electricity costs have remained static, despite the price increases. Do not be scared to switch suppliers.


Insurance, the principal is the same. A word of caution on this, do not under insure, as that is a false economy.


26 • FOOTWEAR TODAY • MAY 2013


If you would like David to look at your business costs, he promises that if he cannot save you any money you pay him nothing. But for every pound he saves you pay him, 15 pence. If you want to learn more email David on david@fdickinsonfootwear or call 01229 580654


.co.uk


Travel expenses is the area where I find businesses can be very profligate. Decide is the trip going to enhance the profitability of the company. If you are going to a trade show is a luxury hotel necessary, after all you are only using the bed to sleep. Remember you are spending business money not your own.


If travelling by train book early as a discounted first class is often cheaper


than a standard ticket, useful if you are GENUINELY going to work while you are travelling. While on the subject of trade shows, while it can be lots of fun, do you need a huge entourage? Unless you are using it to reward your team, keep it to a minimum, as it is not a jolly. Again, if done unwisely it will eat into your cash and therefore your profitability.


Obviously, there are some areas of the business you cannot and should


not go for the cheapest option. Particularly on your online and computer equipment, but again you can save money. Do not be afraid to haggle. Work out beforehand what you have as a budget and do not go over it. Do not go into a negotiation saying I have x to spend though! Or that is what you will spend. It is all about getting value for money, if you are buying half a dozen computers see if you can get a couple of printers thrown in, or a year’s supply of paper. It is not always about cost-it is sometimes added value.


I will leave you with a thought. When you have finished your year end,


make sure you read the profit & loss and see where your costs have gone up. See if you could save money over the next 12 months. Finally, do not forget to negotiate with your accountant as there is no point in saving £5000 and then giving it to your accountant!!


David Gummers is Managing Director of F.Dickinson Footwear Ltd., based in Ulverston, Cumbria.


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