A strong/healthy company should be making at least 15% net profit margin. Simply put, take your revenue and multiply it by 0.15. If you are a $5,000,000 business, that means you should be making $5,000,000 * 0.15 – $750,000. Yep, your net profit should be $750k or better.
If you’re NOT hitting 15%, and continuing with the $5mm revenue business example, for every 1% improvement in your net profit margin, you make and additional $50,000 EVERY YEAR.
Now, imaging you plan to sell your business in 5 years, and you get a six times multiple on sale. That 1% will be worth $50,000 * 6 = $300,000 more value when you sell.
So, that’s a total of $550,000 more money after 5 years:
$50,000 per year * 5 years = $250,000
$50,000 * 6 on sale of biz = $300,000
Total extra in your pocket = $550,000
That’s just 1%!! Imagine if you improved your net profit margin by 5%. We’re talking well over $2,000,000!!!
It’s time to start using good data to make good decisions to make good money. Get in touch and see how we can help.