Everyone knows times are tough – especially small-business owners. We’re all scrambling to succeed.

Here’s something everyone doesn’t know: More sales may not be what you need to survive.

Come with me on a trip down a typical income statement to see what I mean. Here’s last year’s income statement for the fictional Joe’s

Computer Repair:
Sales  $950,000  100%
Cost of sales  $522,500  55%
Gross profit  $427,500  45%
Compensation costs  $190,000  20%
Other overhead costs  $256,500  27%
Total overhead costs  $446,500  47%
Profit (loss)  ($ 19,000)  -2%

Let’s assume that sales are down 10% from the prior year.
You can see that Joe lost $19,000 last year, and like most small-business owners, his first instinct is to regain lost revenue. Not a bad goal, but if that is Joe’s singular focus, he may be missing opportunities and leaving money on the table.

While doing what he can to restore the sales, why not also look elsewhere for financial improvements? Let’s start with cost of sales.

Most of the cost of sales is direct labor expenses, but some comes from the parts used. If Joe can reduce cost of sales by just $9,500 – by getting his repair team to be more efficient and working out a better deal on parts costs – gross profit goes up by that same amount.

Now to compensation. Joe has 11 full-timers. With sales of $950,000, that comes to about $86,000 per employee. Sales per full-time employee (FTE) varies by industry, but in general, anything much below $100,000 is cause for a closer look. With the dip in sales, Joe may have to reduce hours or even head count. Getting down to 10 FTEs would put him at $95,000 per FTE – a significant improvement. This is an important measure that deserves attention. For this example, we’ll leave Joe’s compensation costs alone, as there are enough real layoffs without me piling on fictional ones.

Regarding overhead costs, can the team brainstorm on ways to cut costs and reduce overhead spending by just $12,000? If so, here is the new income statement, reflecting the improvements:

Sales  $950,000  100%
Cost of sales  $513,000  54%
Gross profit  $437,000  46%
Compensation costs  $190,000  20%
Other overhead costs  $244,500  26%
Total overhead costs  $434,500  46%
Profit (loss)  $3,000  +0.3%

At just better than break-even, it’s a start and beats the heck out of a loss. All with the same sales. To get that same bottom-line result solely by growing sales, Joe would have had to increase revenue by almost $50,000 at 45% gross profit!

So, what can you take away from this admittedly simplistic example?
•You and your people should look for improvements in every nook and cranny of your profit and loss statement.
•Small percentage changes can make all the difference at the bottom line.
•If you don’t know your numbers, you can’t manage them.
Now, go sell something! n

Bill Collier (billcollier@greatgame.com) is a coach for The Great Game of Business and the author of “How to Succeed as a Small Business Owner … and Still Have a Life.”