i made a video there a few weeks ago and i linked to it up here if you're watching on youtube on the
right hand side about small business accounts and some basic terms and some basic definitions that
you need to understand if you're thinking about buying or selling a small business and these
would be accounting terms fixed costs variable costs gross margin net margin that type of thing
i've made a video as i say already and if you have a look up here and you're watching on youtube
i'll link to it and you can have a look at it people expressed an interest in a few other videos
in relation to basic accounts and small business and so on and i am happy enough to do such a video
this one then i'm just going to expand a little bit on the notion of gross profit margin and
the difference between three different types of business if you have a look at the screen there
now you'll see that i've set out there a very very basic rudimentary spreadsheet in relation
to three different types of business one is a filling station one is a convenience store
and one is a pub i have personally owned each of these businesses over the last 25 30 years in my
career as an entrepreneur and small business owner if you look at here on this line you'll see weekly
turnover sales so let's just say that the filling station has a weekly turnover of 50 grand a week
let's say the convenience store has a turnover of 20 grand and let's say of a
pub with a turnover of 10 grand if you have a look firstly at the vat exclusive sales
all these figures here the 50 to 20 and the 10 include that now in terms of breaking down your
vat it's not that straightforward to just take 23 off the sales figures and say that's your figure
because two of those businesses the filling station and convenience store and indeed the pub
will be selling goods or services at different rates of that for example the convenience store
will be selling newspapers at a certain rate it will be selling cooked meats and fruit and
veg at zero rate and likewise it will be selling other stuff like confectionary shaving gear razors
um bathroom accessories and so forth at 21 filling station then it's the same story
you're saying fuel diesel and petrol at 21 however you could be selling fruit
and veg in the shop at zero and so on so the vat exclusive sales figure that we're looking at here
i'm saying it's estimated and it's just for the sake of this illustration that i'm showing it
so we're saying then that the 50 grand becomes 40 650 excluding that likewise with the convenience
store likewise with the pub if we assume a gross profit margin and my experience in these games is
a gross profit margin along these lines this is not hard and fast it will vary from time to time
it will vary from location to location but by and large my experience is a filling station will get
your gross margin of about eight percent that will obviously depend on the car wash there as well and
how many cars you're watching because that will be a big factor in terms of increasing your margin
just on that point if you increase your margin with the car wash by definition your car wash
is much much busier there's much greater profit however your variable costs your wages have gone
up because if it's a handheld car wash you're going to need somebody to wash the cars now
you may have a drive through car washes different ball game bigger investment and so on but i'm just
making the point that vale exclusive sales is one thing gross profit margin will vary but i'm just
saying for the sake of this illustration we're saying eight percent for the filling station 20
for the convenience store and 40 for the pub these figures are based on my experience and
they're not entirely off the um off the scale to do bare relation to the reality of the situation
the gross profit that you'll see along the line number eight this line here gross profit
you'll see it's actually the same for each of the businesses so notwithstanding the fact that one
business is turning 50 grand a week the other is turning 20 and the others turning 10 they actually
all end up with the same gross profit now when you go to see what your net profit is you've got to be
looking at your operating costs and you're going to have as i said in the previous video fixed
costs and variable costs fixed costs are costs that you're going to incorp no matter whether
you open or close whether you open five days a week seven days a week or you shut the place down
for a month you're still going to pay the same amount for insurance for the year then you're
still going to pay the same amount for rates they're fixed however variable costs are wages
so wages in a pub or in a convenience store or filling station will vary depending on how busy
you are and so on so the wages figure will be tied to a certain extent to your turnover clearly if
you're doing 50 grand a week in a petrol station if a certain wages bill if you're only doing 20 or
25 grand and the same would apply to the other two businesses if you're only doing 50 percent
of the figures that i've illustrated there then it's quite conceivable that your wages
bill will reduce as well so that's something you need to factor in however there is a level
below which you can't go with wages because clearly you're going to need somebody there
or a number of people there to cover the various hours that you're open and the shifts and so on
the point that i want to make is this each individual business is unique it's like a human
personality to a certain extent and they will have their own particular features and characteristics
they will have their own margin their own turnover and their own particular costs including wages
costs and the job for you as an entrepreneur if you're starting a business or running a business
is to carry out a sort of a forensic x-ray of the potential business that you might be thinking of
buying or starting up and running through various models running through various scenarios to see
under what such situation or circumstances do you need x number of staff and what percentage
will your costs be your fixed costs and your variable costs to the overall turnover and so
on these are the sort of questions you need to be looking at this is the sort of analysis you need
to be carried out but you can't carry out this analysis and you cannot carry out any sort of a
strategic or forensic examination of any business without knowing some basic concepts such as weekly
turnover sales the vat exclusive figures gross profit margin gross profit operating costs fixed
costs variable costs and so on and then obviously as i say each business is different different
characteristics different industries have different margins but they also have different
demands in terms of wages overheads and so on and so forth so a pub you could be looking at
a gross margin of 40 percent you could be looking at eight percent of the filling station however in
a pub depending on whether you're uh only doing drink or you're doing drink on food then your
margin is going to vary significantly from this figure but also your wages costs are going to
vary significantly from this figure just to give you an example let's say you have a pope and it's
a nice quiet pub and you're doing practically all of it yourself you could probably turn over
the whole lot yourself along with yourself and your wife or your partner whatever and you're not
doing food and it's not labor intensive and you're pulling pints and you're serving small ones and so
on and so forth and you make a nice living now that day is probably gone that ship has sailed
now you're expected to do food and so on but the whole offering will be different than if you're
doing food you're in a bigger establishment you're going to have to have practically restaurant
type standards in terms of health and hygiene and food regulations and so on and obviously your
wages your overhead cost is going to increase significantly as well so again you know even
if you only take one of these businesses the pub you could actually find a major disparity
major difference between one pope and another and depending on whether it's a rural pub or a urban
pub and so on and so forth anyway i hope i've given you some food for thought and if you liked
the video give us the thumbs up down below and um you may be interested in subscribing to my youtube
channel but in any event i would appreciate if you give it the thumbs up down below thanks a lot
you