Cash Flow Analysis Using The Cash Flow Analysis Software -- How To Do It With Cash Flow Mojo http://CashFlowMojoSoftware.com
Here's a cash flow analysis tip on how to use your Cost Of Goods Sold to track cost increases and increase or maintain your business profits.
What exactly is Cost of Goods Sold?
Cost of Goods Sold categories in your accounting are for things your business buys specifically to deliver your type of products and services as opposed to regular expenses, like utilities or phone service that every business owner pays.
Let's take a veterinarian for example. A vet's Cost of Goods Sold categories include things like:
Biomedical Waste Removal
Lab Fees
License Tags
Medical Supplies -- not for resale
Products for Resale
Vet Professional Relief Labor
These things are not something that a bakery or a dry cleaner company would buy.
Okay, so here is the formula to get the percentage your Cost of Goods have been running to get a benchmark.
We take a Profit and Loss statement for the prior year to get the total Income and total Cost Of Goods Sold. Then we use the formula of Total Cost of Goods Sold divided by the Total Income equals a percentage. That percentage is the average and becomes the benchmark for future profitability. In this example our benchmark percentage is 44.22 percent.
Now at the end of each future quarter we pull a Quarterly P&L and we do the same cash flow analysis calculation for profitability to see if our costs are within an acceptable range in comparison to the benchmark or if we see costs creeping up.
Now we analyze second quarter and we see that the cost of goods sold percentage is creeping up. If you, as the business owner, do not immediately know why that would be, then the first thing you should check is if any of your suppliers raised their prices without you being notified. If that's the case, you may want to pass that increase on to your customers on that supplier's items to maintain profitability.
If you found suppliers' prices did increase, and you raised your prices to compensate for that to maintain profitability, and your costs still continue to rise in relation to the benchmark, as illustrated in this third quarter calculation, then you need to look into two areas -- waste and theft.
Use this cash flow analysis calculation consistently to keep your costs under control and your profitability high.
If you found this video helpful, please give it a thumbs up LIKE and subscribe to our channel to get notices of new videos.
To learn more about cash flow management and how the Cash Flow Mojo® software can help you with your cash flow analysis and planning visit our website at http://www.CashFlowMojoSoftware.com
To share this video, use these links:
http://youtu.be/YqxGlZstQH8
http://www.youtube.com/watch?v=YqxGlZstQH8
Cash Flow Analysis Using The Cash Flow Analysis Software -- How To Do It With Cash Flow Mojo
Here's a cash flow analysis tip on how to use your Cost Of Goods Sold to track cost increases and increase or maintain your business profits.
What exactly is Cost of Goods Sold?
Cost of Goods Sold categories in your accounting are for things your business buys specifically to deliver your type of products and services as opposed to regular expenses, like utilities or phone service that every business owner pays.
Let's take a veterinarian for example. A vet's Cost of Goods Sold categories include things like:
Biomedical Waste Removal
Lab Fees
License Tags
Medical Supplies -- not for resale
Products for Resale
Vet Professional Relief Labor
These things are not something that a bakery or a dry cleaner company would buy.
Okay, so here is the formula to get the percentage your Cost of Goods have been running to get a benchmark.
We take a Profit and Loss statement for the prior year to get the total Income and total Cost Of Goods Sold. Then we use the formula of Total Cost of Goods Sold divided by the Total Income equals a percentage. That percentage is the average and becomes the benchmark for future profitability. In this example our benchmark percentage is 44.22 percent.
Now at the end of each future quarter we pull a Quarterly P&L and we do the same cash flow analysis calculation for profitability to see if our costs are within an acceptable range in comparison to the benchmark or if we see costs creeping up.
Now we analyze second quarter and we see that the cost of goods sold percentage is creeping up. If you, as the business owner, do not immediately know why that would be, then the first thing you should check is if any of your suppliers raised their prices without you being notified. If that's the case, you may want to pass that increase on to your customers on that supplier's items to maintain profitability.
If you found suppliers' prices did increase, and you raised your prices to compensate for that to maintain profitability, and your costs still continue to rise in relation to the benchmark, as illustrated in this third quarter calculation, then you need to look into two areas -- waste and theft.
Use this cash flow analysis calculation consistently to keep your costs under control and your profitability high.
If you found this video helpful, please give it a thumbs up LIKE and subscribe to our channel to get notices of new videos.
To learn more about cash flow management and how the Cash Flow Mojo® software can help you with your cash flow analysis and planning visit our website at http://www.CashFlowMojoSoftware.com
To share this video, use these links:
http://youtu.be/YqxGlZstQH8
http://www.youtube.com/watch?v=YqxGlZstQH8
Cash Flow Analysis Using The Cash Flow Analysis Software -- How To Do It With Cash Flow Mojo
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