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We recently completed a year’s accounts for one of our bookkeeping clients.

This time around, I noticed that his turnover had shot up from R1m to R4m. Seemed like things were going well. Until I looked closer.

  • His net profit dropped from R53K to R47K, so he was doing four times the amount of work for less profit.
  • On R4m turnover, he should be making at least 8% profit which is R320K, but he was making about 1%.
  • His Gross Profit (the difference between sales and purchases) was 20% of turnover for both years, which is about a half of what it should be.
  • Because of the four times growth in turnover, his salaries had increased four times. from R81K to R351K and he was still only paying himself R10K per month.
  • He had to rent premises, so the rent and rates increased from R19K to R176K.
  • And so on all the way down the Income Statement.

What was he doing wrong?

  • He was growing his company on bad business instead of on good business.
  • It would have been better not to have grown at all, especially as he had leapt over the limit that required him to register as a VAT vendor.
  • Clearly, the problem was in his selling prices. We needed to find a way to increase his average markup from 25% to 67%. That would get his Gross Profit up from 20% to 40%.
  • Why was his markup so low?
  • We had a Zoom meeting and I learned that he had two kinds of client.
  • The one kind were National and therefore had huge buying power. They squeezed their suppliers mercilessly.
  • The other kind were individual companies who appreciated his top class quality and service and were prepared to pay reasonable prices.

We set out a strategy to gradually increase the good business clients and reduce the bad business clients.

I find it very satisfying to help people along the road to success and that’s why I offer unlimited free Zoom meetings.

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