Profits… the one common thread for everyone that owns a business. The reasons why you started your business can vary widely, it could be because you lost a job, because you got tired of working for someone else or you plainly came up with a brilliant idea. No matter how it started, your business is the same as everyone else’s, it needs to be profitable. Whatever the size of your operation, no profit = no company. This is your job, your career and your way of producing an income so you can live off it. Most business owners would always like more profit, a few are content with what they currently do. Chances are you don’t want to cap your profits because your business, most of the time, acts as your retirement plan. The more success you have running it, higher the price you can sell it, or the more money you can set aside when you retire.
It’s always been said that there are basically two ways to be more profitable; more income or lower expenses. Let’s have a closer look at each one.
Yes, the more income you have, chances are you’ll have higher profits. But more income has a major downside, it also comes with more of everything else. Usually you spend more money on advertisement to get it, you need more staff to look after more customers and you also run the chance of dealing with more headaches. Let’s face the fact, if your want more sales, all these things come along no matter how you cut it. Every business gets to a tipping point where you need to look at what is your maximum possible income with your current situation and how much more expense will be creating if you surpass that capacity. Once you’ve decided to cross that threshold, you need to invest in your company and the race to get more sales just starts. There will be a period where your profitability risks the chance of being overall lower, even with more sales, as you work to reach the next tipping point. There is no right or wrong answer as whether you want to grow or not, only what you feel comfortable with. More income will usually mean more profits but be careful not to grow at a quicker pace than you can handle, it can quickly turn into disaster.
This, to me, is the easiest way to increase your profitability quickly. If you’ve been established for a long time, chances are you’ve added some expenses that you don’t see anymore but can drag you down. If you’re just starting up, chances are you are paying for some services and tools you thought you would need right away but you don’t use. It is much easier to control your expenses than it is to increase your sales. While you don’t have a direct control over your customer, even if you entice him to buy more, ultimately, he has the final say. When it comes to your expenses, the buck stops on your desk, no one else gets to decide for you. I encourage you to investigate every single expense for every part of your business. Are you spending your money where it gives you the best return on your investment? Here are some areas to investigate:
Advertisement: Are you still spending a lot of money in the newspaper or on the radio because the rep is a long-time friend or any other reason without logic?
Staff: Is all your staff working efficiently? Over time, employees tend to get complacent and are not as efficient as they can be. This can result in you paying more employees than you need.
Transportation & vehicles: If you do deliveries, have you maximized the routes so there is less time spent driving around. This burns unnecessary fuel, puts wear and tear on the vehicle and costs you more for a driver.
Utilities: Communications have changed, do you still need that multiple lines system that needs to be programmed every time something goes wrong? Are you using LED lighting? Have you looked at government programs that can help you in saving money while being more energy efficient?
Insurance: Just like your home and car insurance, it can be profitable to shop around for your insurance before every renewal. When did you last spend an hour doing that?
Some of these ideas can take a few hours to complete, but if they can save you even a small amount like $300/month, it all equals to $3 600 in a year more profit for you. It didn’t cost you any money to achieve it, no major overhaul of your operations and no headache to grow your business. For a business that has $50 000 profit in a year, that small amount still translates to an increase of 7.2% in profitability. Not too shabby for a minimal amount of work and research, wouldn’t you say?