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Small Business Profitability Checklist

Quick start: the 2 numbers to know

Every week, write down two numbers: total revenue last 7 days and total cash change (cash in minus cash out). If revenue is up but cash is down, dig into costs or timing. If both are up, keep doing what worked.

1. Know your real profit (monthly)

  • Calculate gross profit: Revenue minus cost of goods sold (COGS). Example: coffee shop sold $10,000, beans & cups $3,000 → gross profit $7,000.
  • Calculate net profit: Gross profit minus all operating expenses (rent, wages, utilities, ads, loan interest, taxes). Aim for a clear net profit percent target (common targets: 10%+ for retail, 15%+ for services).
  • Decision rule: If net profit < 5%, prioritize cutting costs or raising prices now.

2. Price like a business, not like a friend

  • Simple markup rule: Price = COGS × (1 + markup%). For retail, common markup is 50–100%. Example: product costs $20, price with 50% markup = $30.
  • Value pricing check: If customers will pay more because of speed or quality, raise price above markup. Test with A/B pricing or limited run.
  • Decision rule: If lowering price does not increase sales volume by enough to keep gross profit constant, don’t cut price.

3. Control direct costs (COGS)

  • Audit suppliers quarterly. Ask for discounts at 3, 6, 12-month volumes. One-step swap can save 5–15%.
  • Reduce waste: track waste % monthly. Aim to lower it by 1–3% each quarter.
  • Example: Restaurant reduces food waste from 8% to 5% → direct cost savings = 3% of food spend.

4. Trim operating expenses where it matters

  • Split expenses into fixed (rent, salaries) and variable (ads, supplies). Cut or optimize variable first.
  • Contractor vs employee rule: Hire contractors for irregular tasks; employees for steady core work. If task <20 hours/month, prefer contractor.
  • Negotiate major fixed costs annually (rent, insurance). Even a 5% saving helps the bottom line.

5. Improve sales without big ad spend

  • Ask for repeat business: add a simple loyalty offer (buy 9, get 10th free) or a follow-up email for services.
  • Increase average order value (AOV): bundle products, offer add-ons. Example: hair salon sells product kit for $25 more.
  • Decision rule: If a $10 promo increases AOV by $20 per customer, keep it.

6. Know customer economics

  • Calculate Customer Acquisition Cost (CAC): total marketing spend / new customers this period.
  • Estimate Customer Lifetime Value (LTV): average sale × purchases per year × years retained. Aim for LTV > 3 × CAC.
  • Decision rule: If CAC > LTV/3, stop current marketing channel and test cheaper ones (referrals, partnerships).

7. Manage cash flow actively

  • Keep a rolling 90-day cash forecast updated weekly.
  • Speed up receipts: offer 2% discount for early payment, require deposits for big jobs (25–50%).
  • Slow down payables without penalties: negotiate 30→45 day terms with suppliers where possible.

8. Inventory and labor optimization

  • Inventory rule: Keep 1–2 months of inventory for steady sellers; tighter (2–4 weeks) for fast-moving items.
  • Labor schedule rule: Align staff hours with sales patterns (use past 4 weeks to create weekly schedules).
  • Example: Retailer reduces weekend overtime after shifting staff from slow weekday evenings → labor cost down 7%.

9. Pricing and promotions checklist

  • Before a promo, calculate break-even: additional units needed = lost margin / incremental profit per unit.
  • Track promo ROI: extra profit from promo minus promo cost. If negative after two runs, stop.
  • Use limited-time offers to test price elasticity; don’t give permanent discounts without measuring impact.

10. Monthly review rituals (15–30 minutes)

  • Look at three reports: Profit & Loss, Cash Flow, Best/Worst sellers.
  • Ask three questions: What rose? What fell? What action this month?
  • Set one clear improvement goal (reduce COGS 2% or increase AOV $5). Assign one owner and deadline.

Tools and simple templates

  • Use a basic spreadsheet: revenue rows, COGS rows, expense rows, net profit row. Update monthly.
  • 90-day cash forecast columns: starting cash, predicted receipts, predicted payments, ending cash per week.
  • Customer LTV quick calc: Avg sale ($) × purchases/year × years retained.

Final quick checklist (one-page)

  • Weekly: record revenue & cash change.
  • Monthly: calculate gross & net profit.
  • Quarterly: audit suppliers and inventory levels.
  • Always: require deposits for big jobs; test price increases in small steps.
  • Monthly meeting: review 3 reports, set 1 profit action.

Use these items as your operating rhythm. Small, consistent changes are what build reliable profit.