Inside Small Business | Small Business & Home Business Marketing

Keeping an Eye on Profit and Loss

Before we had learned to keep track of our finances properly we made all kinds of missteps. There were small, relatively harmless mistakes like buying too much of a small inventory item, or buying an unnecessary computer. And then there were the big mistakes. Every one of these mistakes could have been avoided if we had only been keeping track of our finances the right way.

After we had been shipping our power tool parts for a year or so something became really obvious: DHL Ground was losing a lot less packages than US Mail was. Plus DHL gave us a tracking number and a guaranteed delivery schedule. I decided to drop US Mail altogether and have all of our packages shipped using DHL. This would have been perfectly all right but here’s where I made my big mistake. DHL cost more than US Mail, and I was so afraid that higher shipping charges would turn away customers that I decided to send everything DHL but charge the much lower US Mail rates. This meant forfeiting some profit on certain orders and taking an outright loss on others. I just figured that the profit from the orders would overall outweigh the losses from the shipping carrier.

Turns out I was wrong. To make things worse, we had no way to view our company’s profit and loss statements. We were completely winging it. If we had been carefully watching our costs and looking regularly at margins and the bottom line, we would have been alerted to the problem within a couple of weeks. Instead, we kept losing money for months and months without any idea of what was going on. It was a total disaster.

As soon as we were watching our numbers properly we quickly made some changes to our shipping. US Mail was reactivated as a shipping option and the DHL prices were raised to where they should have been. Like flipping a light switch, we were suddenly profitable that day and everything was fine. After that period of time we’ve watched our profits and losses very carefully. Use QuickBooks or whatever program you prefer for your accounting and stick to it. I won’t ignore accounting as a business owner, and we handle our own books. For us, it’s the only way to keep our heads above water.

Posted on Friday, May 9th, 2008 at 9:37 am and is filed under eReplacement Parts. You can follow any responses to this entry through the RSS 2.0 feed.