YOUR sales and profits are up, your workforce is expanding and the bank hasn't phoned for months. Sounds like your business is performing well - but beware.

Dig deeper into your accounts and those rising profits could be masking falling margins, declining productivity, rising costs, lower returns and lost opportunities.

When was the last time you checked your:

Return On Investment (ROI)? - net profit before interest and tax, divided by total assets employed.

Customer numbers? How often they buy? How much they spend? Lead conversion rate? Defection rates?

Total costs - comprising direct costs, activity costs and fixed costs?

Gross margin? - (sales minus direct costs) divided by sales. Work out how much a falling margin has cost you in lost profit.

Net margin? - net profit before interest and tax, divided by sales.

Productivity? - sales versus wage costs.

Business adviser and accountant Michael Ogilvie warned: "Don't wait for your bank to say 'enough is enough'.

"Banks are overloaded with work because of their cutbacks. They look at figures at face value because of the amount of work they have," he told a Business Link Wessex seminar at the Bournemouth Highcliff Marriott Hotel.

"Consider this. If your net profit is £10,000 and is increasing each year by 10 per cent, and your total assets are £100,000 and increasing each year by 12 per cent then ROI is 10 per cent - but your business is doomed to failure!" said Mr Ogilvie, a director of The Profit Team.

"In year two, your net profit is £11,000 and total assets are £112,000 so ROI is 9.8 per cent.

"Even if you reinvest all the profits and ignore tax, you still need £1,000 of additional debt, or your own money," he added.

For more information, click on www.businesslinkwessex.co.uk/ increased-profits

Factfile:

1. Understand why you are in business - To make profits! Explain that to your staff, introduce a "profit culture".

2. Don't be a busy fool. Understand the difference between working "on" and "in" your business.

3. Understand the paradigms that are holding you back.

4. Eliminate profit robbers - encourage your team to spot opportunities and eradicate waste.

5. Have a clear vision - know exactly where you are aiming to take your business.

6. Create an action plan, share it with your team.

7. Harness the power of leveraging - 10 per cent increases in prices, numbers of clients, numbers of items sold and a 10 per cent cut in costs will cumulatively have a dramatic effect on your profits.

8. The easiest way to increase your profits is to get your price right. What little extras can you add to justify raising your prices?

9. If you want people to talk about you then you have to give them something to talk about.

10. Be bold, take action and have fun.