Lloyd Wright Accountant & Business Consultant

Is your Gross Profit realistic?

A question you’ve likely heard before. Maybe it’s timely to ask again.

Many UK businesses face many external pressures, rising supplier costs and exchange rate fluctuations to name a couple. This may be picked up quickly by business owners as part of regular and accurate reporting of 'Gross Profit 1' with suitable safeguards and appropriate actions implemented.  Are you struggling to maintain margins on your products and solutions?  Read a previous article here on '4 ways to increase Gross Profit margin'.

Then comes Gross Profit 2 - what about direct costs? We would recommend you differentiate between Gross Profit 1 (the margin on the products themselves, taking into account carriage inwards/import duty (i.e. landed costs)) and Gross Profit 2 (taking into account other direct costs).  Are you splitting costs and time accurately between carpet and concrete, or office and warehouse?

Here are some ideas (though not an exhaustive list) provided for your review and consideration of direct costs and including them above the line before Gross Profit:

Are your warehouse costs going above the line?
  • Warehouse wages (including Employers national insurance and pensions)
  • Temporary warehouse/agency labour
  • Warehouse costs – e.g. small tools, equipment repairs, consumables, hire/rental of forklifts, pickers, reach trucks etc.
Are you involved in manufacturing, production, or assembly of products?
  • Any wages involved in assembly, production or fabrication (including Employers national insurance and pensions)
  • Electricity/gas apportionment 
  • Apportion premises rates/rent (including notional rent)
  • Water rates
  • Machinery depreciation
  • Machinery repairs, servicing and maintenance
  • Any outsourced or subcontract production/assembly processes
Are you doing your own deliveries (i.e. using own vans or truck fleet)?
  • Drivers wages (including Employers national insurance and pensions)
  • Fuel
  • Any other running costs (repairs, servicing, road tax, insurance)
  • Leasing costs (if on contract hire)
  • Depreciation (if owned/hire purchase/finance lease)
  • Other travel charges – tolls, parking, congestion charges, fines/penalties
  • Hire of vans (if short-term rentals etc.)
Do you pay for any external storage to hold stock?
  • External storage costs/rent with outsourced provider/s
  • Container/trailer renting in yard etc.
  • Any additional insurance relating to the above

Whether you require further general advice on how to better record and report on your GP, or more specific guidance on whether a particular cost item or category should sit above or below the line, please get in touch with us!