Watch Out For These Five Profit Margin Killers To Save Your Business

No business owner will knowingly hurt the profitability of their business, but most of them are doing just that unwittingly. You may be striving to do the best for your business but the lack of proper tools will reduce what could be a larger profit margin. In many such instances, it is advisable to assess your financial data with the help of accounting firms in Dubai.

You need to identify the profit margin killers that keep your business profits stagnant or even shrinking. Margin killers can be oversights and inefficiencies in your business that may appear small but together make a big difference between a thriving company and one that struggles to stay afloat. We have compiled a list of profit margin killers that you must avoid, which you can read below:

1. Pricing That Doesn’t Reflect Your True Costs

Many small businesses in Dubai often neglect or lowball expenses while setting prices. For example, a landscaping firm may charge for the time spent by its workers on a specific project, but fail to charge for the time taken to travel to the project site. In a similar example, a manufacturing company may fix prices that don’t cover overhead items such as the cost of running the office, maintaining equipment or paying the accountant.

Accounting firms in Dubai advise you to check your company’s direct and overhead costs so that it gets reflected in how you calculate the profit margins and pricing. This may come critical for you at the time of rising inflation as well. When your suppliers raise the prices they charge you it is essential for you to ensure your prices mirror this reality.  You are doing business in Dubai to primarily make money and if it is not competitive at a fair price you must make necessary changes to your business or operating model.

2. Holding onto Unprofitable Products

Many companies incur costs from products that no longer make profits and the business owners may not even be aware such products are costing them money. In such a context, it is critical for you to analyse the financial data of your company to break down the profitability of individual products and services. Analysing the data with the help of accounting firms in Dubai will help you to identify the winners and losers among your product line. After identifying the unprofitable products or services you can make a decision on them. You may ask the following questions to make that crucial business decision:

  • Is it possible to hike the price of unprofitable products?
  • Is it okay to retain the product or service as it is required to win sales for other products or services?
  • Is it a better way to produce or market unprofitable products?
  • Does it make business sense to eliminate them altogether?

3. Failing to Manage Customer Relationships

Some customers may prove to be more expensive for your business as they warrant more time and attention than the others. Such customers may fail to provide you with a document that is necessary to start a project. Some customers even ask for revisions or add-ons that were not in the contract you signed. Most small businesses agree to do the extra work without levying any charges just to maintain the customer relationship.

According to accounting companies in Dubai, you should be vigilant about such customers who may turn out to be profit margin killers. Ensure that the contract clearly states how the changes and add-ons will be invoiced. Also, make sure that your employees keep you informed about unexpected customer requests and tell the customers that such additional requests will be charged by your company.

4. Lack of Rigour in Expense Control

As the revenues grow, entrepreneurs may tend to show a lack of rigour in controlling their expenses. Your accountants can show where the money is going out from your business. On a closer examination, you may see rising costs on things such as the hiring of new employees, vehicles or advertising are not creating a corresponding jump in revenue. You can cut the costs by working on reducing the outlays that constitute 80% of your total expenses. You can also research the market periodically to see if it is possible to get a better deal on fixed costs including insurance, telecommunications services and maintenance contracts.

5. Failure to Use Technology

The age of digital transformation is already alive and kicking in Dubai and you may need the latest technological solutions to eliminate profit killers. Adopting technology-based accounting solutions in Dubai will help you to identify the areas through which profit is leaking. Accounting firms in Dubai can advise you on the robust accounting software to calculate your profit margins, track your expenses and monitor asset turnover, among other key performance indicators. Companies that fail to adopt the best technological solutions will suffer.

Consult with the Best Accounting Firms in Dubai, UAE

If you identify with any of these five scenarios, you are unknowingly leaking profits. However, it can be stopped by consulting with the best accounting firms in Dubai such as Jitendra Chartered Accountants (JCA). JCA can advise you on key accounting services in Dubai such as bookkeeping, tax return filing, corporate financing, ICV certification, corporate tax, Ultimate Beneficial Ownership (UBO), Economic Substance Regulations (ESR), and Anti-Money Laundering (AML).