Importance of gross margins and fixed costs in small business

As the COVID restrictions are being lifted, small businesses will start to operate regularly, albeit some with less number of patrons/customers due to WFH becoming new normal.

In this new normal situation there will be some higher costs to the business. All small business owners will need to review their costs and understand its effect on their profitability. Some costs are fixed in nature and these don’t change based on turnover. These are, as name suggests fixed in nature. Examples are salaries and wages, Warehouse rent, office rent or lease etc. Variable costs change based on the turnover. Again, there are inventory costs that can pile up if there are issues with turnover. Having a good control over various costs is very important.

It is also important to review their gross margins on all products and services. Also, it is paramount that they do break even analysis to understand the revenue requirements to run their business in profits. Break even analysis can help business owners to have period revenue goals to achieve to be profitable. Once break even sales are determined for the year then that number can be broken down by month and week. It is sometimes can create unnecessary pressure on the business owners to being reasonable with yourself in understanding what is a achievable measure without pushing yourself too hard. Whatever is the chosen way but tracking numbers regularly would give you more control over your business.

Small business owners will need to again embrace entrepreneurship mindset to get their costs under control. There is a distinctive advantage of this mindset, it priorotises success of their business and make them resilient.

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