If you run a business, you are probably familiar with the term gross profit—or the sum of money left over once all the direct manufacturing and delivery services have been paid for. But in the trading world, calculating gross profit can be an arduous task. And it’s often made harder by inefficient systems. 

Keeping consistent, accurate records of all incoming and outgoing payments is one of the best ways to ensure that your gross profit margins are in good shape. 

To get you on the right track, we’re taking a closer look at the importance of record-keeping in trading and how to create and maintain a great gross profit margin analysis system. 

Why You Should Be Keeping Accurate Records 

Every business should take the process of accurate record-keeping seriously. But when it comes to trading, this is an area you really can’t afford to skimp out on. 

Trading businesses function through perpetually buying and selling assets. This typically leaves a long and complicated paper trail that should be closely monitored to remain organized and in alignment with the laws. 

There are many good reasons for traders to upgrade their record-keeping system, and ensure it adheres to a certain structure. Here are five ways that keeping consistent, accurate records for your trading business will benefit you: 

1. Track the growth and progress of your business

All business owners should closely monitor their growth patterns and progress over time. A functional financial record-keeping system allows you to do that. You can also use a Zintego.

The more organized your record system is, the less stressful and tedious it will become. It’s the kind of small adjustment that makes a huge difference in the long run—and can make all other existing systems run smoother and more efficiently as a result. 

2. Prepare fuss-free, accurate financial statements 

In order to create accurate financial statements, you need access to accurate records. From income statements to balance sheets, you will often need to rely on your financial records. When dealing with banks or creditors, concise financial statements will help you reach your goals. 

3. Clearly identify your sources of income 

Throughout the course of running your trading business, you will receive income from multiple sources. You may invest in gold and sell it at a profit or you might sell shares that have vested. This information is crucial for separating non-business from business receipts and non-taxable from taxable income when drawing your financial statements. 

4. Easily prepare your tax returns 

Nobody likes preparing their tax returns. But there are ways to make the process less painful. One of them is to make sure your invoices and financial records are all in perfect order, saving you significant time (and sanity) when the annual process begins. 

Accurate financial records will be able to support your credits, expenses, and income. Don’t put yourself through the anxiety of sifting for those records last minute. Keep them organized and on hand. 

5. Easily keep track of your basis in property 

Your basis in property is the amount of money you invest in property for tax purposes. This amount gets used to determine the loss or gain of any sale, exchange, or disposition of that property, allowing you to keep track of depreciation, depletion, casualty losses, or expense deductions. 

6. Gain a bird’s-eye view of your trading business 

Ultimately, keeping accurate records in the trading business is important for general maintenance and gaining a better perspective of progress over long periods of time. Without a strong financial record system, it will be nearly impossible for your business to stay organized and grow in the future.

Understanding gross profit margin analysis with ratios and examples 

Gross profit margin analysis is the act of formally analyzing the profit your business makes after paying its bills and other expenses to keep it running.  

However, the term “profit margin” can apply to a variety of other different margins, such as operating profit margin, pre-tax profit margin, and net profit margin. All of these margins are important to track if you want to run a successful trading business. 

Your gross profit margin analysis is an indication of your business’s health and stability. Performing regular audits of its gross profit margins is key to understanding where it’s at and what might need to change going forward. 

So, how can you improve your profit margin analysis system? 

• Use accounting software – Not everyone is born with natural accounting skills. That’s why we have software to help us in this area. Accounting software not only streamlines your financial processes, but it can also automate a large portion of them too. This saves you time and money in the long run. 

• Use web analytics – If accounting software isn’t an option for you, there are some free financial analytics tools available online that you can use. These will help you to gain a better perspective of incoming and outgoing expenses, as well as save your financial data in a more secure way.
  
• Outsource someone to handle your invoices – Another option for improving your profit margin analysis system is to outsource the job. There are a large number of freelance accountants available online who will handle your invoices professionally for a fee.
  
• Make invoicing a priority – Essentially, the message here is to take your financial reports seriously and prioritize the organization of profit and invoice records. With a smooth-functioning financial system, your business will be set up for success. 

The trading business is flourishing, which means that competition is fiercer than ever. If you let your financial records system slide, it can impair your ability to compete with other traders in the marketplace. 

In order to maintain an edge, you need to know how to calculate profit margin. Once you understand that, you need to set up an efficient, organized gross profit analysis system. The more organized you are, the easier it will be to work on making profitable trades and maximizing your investments. 

At the end of the day, keeping tight financial records and performing regular gross profit margin analysis are two of the most important parts of running a trading business. By keeping your affairs in order and committing to a robust financial record system, you lay down a foundation for your business to thrive. 

Meta Title: Why Traders Need To Know About Gross Profit | The Trader Chick

Meta Description: As a trading business, you need to know all about invoicing and gross profit margin analysis. Use this in-depth guide to stay on top of your finances.