This was first published as one of my email stories about business and how to increase profit. It got some rave reviews from the people on that list, so I’ve reproduced it as a blog post so everyone can see it. It’s about cheese. And money.
One of the exercises I often do with clients is to show them how all the money they make gradually disappears. It’s a magic trick, called your profit and loss account.
Imagine a big piece of lovely cheese. Maybe a 1kg piece of cheddar. That’s your turnover, what you’ve sold this month. Well done, it took a lot of work to make all that cheese.
The cheese is sitting in your fridge (or your bank account if you want to be accurate and remember that this is not really cheese, it’s cash.) And it gets raided.
The hungry teenagers – your cost of sales
First, there are the cost of sales teenagers who come in and eat some of your cheese after school. These are your suppliers, the people you buy your products from, or the associates who do some of the delivery work for you. Wow, they’ve eaten a third of your cheese already! That’s not going to help you increase profit.
Payroll – another chunk of cheese
And then you might have some staff who love cheese on toast, and another big chunk of cheese goes out in payroll.
Mice and cheese – overhead nibbling
And then there are the mice. Even if you don’t have cost of sales teenagers or cheese on toast eating staff, I bet you have some mice who nibble away at your lovely big cheese. Mice are the little things which eat up your money/cheese in little amounts. My mice include phone bills, insurance, helpful and time-saving online software, plus my office rent and love of stationery and business books.
After your kilo of cheese is eaten away by the suppliers, the staff wages and the bits and pieces, what’s left is your net profit and that’s what you want to increase. Maybe you don’t lose so much, and you still have a decent-sized lump of cheese left. Or maybe there are just a few crumbs.
Oh no, it’s the cats!
And you pay yourself some dividends and eat some well-deserved cheese. But don’t forget about the cats! The cats come round every quarter and then again 9 months after your year-end. Yes, the cats are VAT (sorry, couldn’t resist a rhyming pun) and corporation tax.
They want 20% of all the cheese you’ve got in from your customers, and then another 19% later on. And there’s that dangerous new kitten, the 7.5% personal dividend kitty, who will want some cheese from your own personal fridge/bank account. Don’t forget to put some of your cheese away for these cats.
The moral of this tale
The moral of this week’s tale is – even if you think that’s a good looking piece of cheese, it will get nibbled away at.
If you’d like some help in making sure that you make more cheese to start off with, so there’s plenty left for you to eat once the teenagers, the cheese on toast people, the mice and the cats have had their share, here’s how we might work together on creating a big mountain of cheese for you.
PS – I think this story would make a good video – let me know if you think I should do this.
Photo credits – Main photo – by Ted Drake. Big chunks of Parmesan by Brian Boucheron. Cat and Cheese, photo by Irina, of a painting by George Smith of Chichester.