You are in business because you love what you do, but you also should be in business to make a good income for yourself and your family. You CAN accomplish both! But in order to do so, you must know your numbers, and more importantly, you need to know and manage your costs.

Costs in restaurants, salons, shops and spas fall into two groups:

  • Costs of Goods Sold and
  • Overhead Expenses.

Cost of goods sold will include all your labor, supplies and purchases.

  • Your total COGS should not be more than 60% of your total revenue. This is the 60% rule.
  • To break it down further, your labor should not be more than 30% of your total revenue.
  • Your supplies and purchases also should not be more than 30%.

So what if you are breaking the 60% rule and your costs are higher than this? This is when you can start to go upside down in your business. You are spending too much and making too little. Armed with your numbers, you now know where you stand and the areas you can begin focusing on.

Tips for Managing COGS

You can begin to manage your costs, which will result in higher profits and bigger smiles for your business, with some of the following tips:

  • Ensure your inventory numbers are right. Mis-counting can result in a skewed higher cost percentage.
  • Control waste. Over purchasing, not using items before they expire, disposing of items inappropriately, all of these things result in waste and expense to your company.
  • Manage your labor. This is a fine art and very specific to your business, time of year, time of day, so many things are variables in your labor costs. Knowing your labor percentages on a daily and ongoing basis will help you to tune this fine art and help you get your labor percentages right where they need to be.
  • Manage your purchases. Knowing and reviewing your COGS every month will alert you when your purchasing costs are too high. Are you holding too much inventory? Do you need to source out new vendors with lower prices? Is your business buying things they just don’t need? You will never know these answers without knowing your numbers.

The common theme in managing your costs for higher profits is to KNOW YOUR NUMBERS. Ensure you are teamed up with a good bookkeeper/accountant you are keeping your numbers accurate and timely so you have the reporting you need, when you need it.

At Bookkeeping Solutions 5280 we have over 15 years experience supporting small businesses including helping to produce timely and accurate financial statements while educating and advising business owners in using these statements to become their most successful!

Let us do your bookkeeping, so you can get back to focusing on what you love to do.