Episode 40: Where Is Your Profit Going? How to Use QuickBooks to Find Cost Creep

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Episode 40: Where Is Your Profit Going? How to Use QuickBooks to Find Cost Creep

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Episode 40: Where Is Your Profit Going? How to Use QuickBooks to Find Cost CreepYour business can be growing while your profit is quietly getting smaller.A vendor raises a price. A discount expires. A software subscription renews at a higher rate. Material costs increase. Payroll or overtime creeps up. None of those changes may seem significant on their own — but together, they can slowly eat away at the profit you worked hard to create.In this episode of QuickBooks Mastery for Small Business Success, Erica Northrup and Lee Davis talk about cost creep and how small business owners can use QuickBooks to identify rising expenses before they become a much bigger profitability problem.Lee shares a real client story about noticing that a negotiated payroll discount had changed. The client wasn't notified that the amount they were paying had increased. Lee caught it because he was reviewing the numbers, questioned what had happened, contacted the payroll provider, pushed to have the correct pricing restored, and pursued the missed discount retroactively.But this episode goes far beyond payroll.We talk about how to use your QuickBooks Profit & Loss report, vendor history, purchase orders, Products & Services, cost of goods sold, payroll reports and expense trends to understand what your business is actually paying — and whether those costs are changing faster than your sales.Because increasing revenue doesn't automatically mean increasing profit.If your sales grow 5%, but your cost of goods sold grows 10% or 15%, something deserves a closer look.The goal isn't to cut every expense or always choose the cheapest vendor.The goal is to know what you're spending, understand why you're spending it, and make those decisions intentionally.QuickBooks is most valuable when it does more than record transactions.It should help you answer questions like:Where is my money going?Why did my profit change?What is getting more expensive?Are my margins shrinking?Where do I need to ask better questions?Key TakeawaysSmall increases add up. A $50 or $100 recurring increase may not seem significant until it happens every week or every month.Revenue can hide a cost problem. Growing sales don't necessarily mean growing profit if expenses are increasing even faster.Use your Profit & Loss report to compare periods. Look at changes in both dollars and percentages and start with the expenses that increased the most.Review vendor history. QuickBooks can show you what you paid a vendor previously so you don't have to rely on memory.Purchase orders can protect negotiated pricing. Compare the vendor's bill with what you originally agreed to pay.Know what your products and materials actually cost. If your cost rises while your selling price stays the same, your profit margin shrinks even if your revenue looks unchanged.Watch cost of goods sold. If COGS is increasing significantly faster than sales, that can be an important warning sign.Pay attention to payroll and overtime. Ask whether increasing payroll costs are producing a corresponding increase in sales, productivity or output.Use your numbers when negotiating. There's a big difference between saying, “This seems expensive” and being able to show a vendor exactly how your pricing has changed over time.The cheapest expense isn't always the best expense. Reliable vendors, quality products, good insurance and valuable employee benefits may absolutely be worth paying more for.The goal is not simply to spend less.The goal is to spend intentionally.Questions to Reflect OnWhat are the five vendors, products or expense categories that have the greatest impact on your business's profitability?What were you paying for those expenses six or twelve months ago compared with what you're paying today?If your costs increased, did your pricing, sales or business model change enough to absorb that increase?Mentioned in This EpisodeProfit & Loss ComparisonsUse your QuickBooks Profit & Loss report to compare one period with another and look for expenses that have increased substantially in either dollars or percentage.Vendor HistoryReview what you've historically paid recurring vendors and question unexpected changes rather than automatically assuming the current charge is correct.Purchase OrdersFor businesses purchasing inventory, materials or equipment, purchase orders can create a record of negotiated quantities and pricing that can later be compared with the vendor bill.Products & ServicesQuickBooks Products & Services can help you track what you're selling and, when set up properly, what those products or materials cost your business.Cost of Goods SoldWatching COGS alongside revenue can help identify margin compression that might otherwise be hidden by growing sales.Payroll and OvertimePayroll is one of the largest expenses for many businesses. Increasing overtime should be reviewed alongside the additional revenue or productivity it is generating.Duplicate BillsLee also shares a recent example ...

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