How to dramatically increase profits for your small business to reward yourself and your staff
As a small business it's crucial that you make a profit, otherwise you'll eventually run out of money and go out of business. Plus, if you make a profit, you can reward yourself and staff with a pay rise, bonuses or dividends (if you're a shareholder).
Below, you'll find out how to boost your profits, so you'll have money to fund growth, pay for staff recruitment and training, premises, equipment, software, loan payments, etc, and build a vital cash reserve to weather any financial storm.
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Cutting the cost of producing your product / service will significantly boost profits
Every pound you save in the cost of producing your product or service, is an extra pound your business gets to keep, assuming you're making a profit at the moment.
Identify everything that goes into your production process, such as raw materials, labour (employees / contractors) and equipment, etc. All the costs that are directly associated with your product / service.
Is your small business getting great value for money? Always shop around for everything, getting quotes and negotiating better prices with both new and existing suppliers. Don't assume that you're getting the best price, check and see.
However, it's important that you don't choose inferior suppliers, which may then compromise the overall quality of your product / service, so do your due diligence carefully.
Think about whether it is better to lease, rent, hire or buy? This will depend on how frequently you need something and how much it costs to buy outright. If you need it regularly, you may need to lease or buy it, otherwise consider hiring it.
You (and your team) should constantly be looking at how you can improve efficiency and productivity of all staff and contractors, including all systems, processes, procedures and practices.
Cutting the cost of a product / service that you buy in
If you buy in a product / service and then sell it (or add something to it and then resell it), you must ensure that you are paying the lowest price possible, as every pound you spend will be a pound less of profit for your business.
When you're buying directly from the manufacturer, its vital you negotiate the best deal, with the lowest prices and always ask about and try and secure extra discounts. If you don't ask, you don't get!
Buying from a wholesaler or distributor is fine. But, if you've been using the same supplier for years and haven't checked their prices recently, then now's a good time to ask for a better deal! Switching suppliers might get your business a better deal or your current supplier might match it.
Ensure your due diligence process is thorough and that you rigorously apply it to all suppliers, even those you've been working with for years, as things can change over time.
Fixed overhead costs can significantly reduce your profitability
Even in a small business, your fixed overheads can account for a major part of your overall business costs. You could be saving £1000s a year or more, which would go straight to your bottom-line profit.
Regularly review all your small business's fixed costs, including employees, contractors, marketing costs, products / services your business uses itself. The lower your costs, the more money you can save, and the more profit you'll make.
Do look at everything your business is paying for and ask yourself, "Do we really need this?" If you don't, then don't buy it again or cancel it if you're on a contract. Don't keep paying for something 'just in case' you need it.
Once you've decided on what you need to keep, then it's time to check you're getting a good deal, so call suppliers now and check. Think about whether it'll be better to lease, buy, rent or hire it.
Don't forget things like your broadband, landline and any business smartphone contracts, plus any software or apps you pay for on a regular basis. Cost savings can really add to your profits.
Raising your prices can increase profits, but be careful
It's certainly worth considering raising your prices, as this will increase your profit margin by the same amount. You can afford your sales to fall slightly, but as long as this isn't too sharp, your overall profits will rise.
But you do need to be careful how you manage any increase, and you must be aware that customers are far more price sensitive now than they've ever been in the past.
If increasing your prices makes your products / services too expensive compared to your competitors, this could cause your business to lose a lot of sales. Profits may then actually fall, rather than rise.
So, make sure you model beforehand how any price changes you're proposing will affect your overall sales revenue and profitability.
Increasing your sales activities will increase profits
Typically, an increase in your sales will also increase your profits, as long as you make a net profit on each additional unit that you sell. You can discover how to increase your sales in our comprehensive article.
Be careful about giving big discounts to win new business, as these can severely reduce your profits. Make sure that you understand your profit margins, so that you don't end up making a loss by giving too big a discount.
Clearance sales of end-of-line stock or stuff that just doesn't seem to shift can give a much-needed boost to your coffers. Promotional sales can also add to your profits, as long as you've calculated your margins and discounts properly.
Who owes you money? Collect it now and boost cash flow and profitability
If your business offers credit to your customers, then make sure you keep track of who owes you money, how much they owe you and when it is due. A typical small business is owed £24,841 according to Xero.
Failure to collect the money owed to your small business can put a severe strain on your cash flow. Don't be one of the many small businesses that go bankrupt every year, just because you didn't collect the money you were owed.
Some small business owners even have to borrow money or lend their own money to the business to keep it business afloat to allow them to pay staff wages and bills.
Remember, any money owed to your business is your money. So, make sure you collect it all. Don't be embarrassed about asking for invoices to be paid, but always do it in a pleasant and professional manner to retain their business.
Getting your staffing levels right will deliver increased profits
Your staffing levels have an enormous impact on your small business's profitability, which means it's critical you review them regularly. If you have too many staff, your costs will rise, and you'll make less profit than you could have made.
Whilst, if you have too few staff, you won't be able to meet customer demand, which means you'll make less sales and lose sales you should really have won.
It's always a delicate balancing act, you must ensure your business can manage both the peaks and troughs in demand for your products / services.
During busy times, make sure you'll have enough staff. Don't let staff take holidays at peak times when you need them the most. Using freelancers / contractors can be very cost effective.
Improve profitability by differentiating your business from your key competitors
Differentiating your business and its products / services means you don't have to compete so much on price. This allows your business to command higher prices and far higher gross profit margins and net profits.
You want to become the 'Apple' of your sector. Apple can charge higher prices for its products and services because its buyers believe they're superior to competitors.
Even if you are selling exactly the same brands as competitors, think about how you can add value and differentiate yourself. For instance, in the retail sector John Lewis used to be 'never knowingly undersold'.
Better customer service or an enhanced customer experience can also differentiate your business and the products / services you sell.
Carefully check all bills and invoices
It's vital to check all bills and invoices you receive thoroughly. You need to ensure you aren't overcharged or charged for products / services that you didn't receive or didn't ask for.
Also be aware of the potential for fraud, both big and small. Be incredibly careful if you receive a letter or email stating that bank account numbers have changed or please send a cheque made out to a new different supplier.
Never be afraid to pick up the phone and speak directly to the supplier yourself using the telephone number you already have. Suppliers won't mind you checking to confirm their details.
Your vigilance could save you from making a very costly mistake that you won't be able to rectify later. Some businesses have experienced severe financial losses because of fraud.
Stop thief! Protect your profits and your business
It's important to prevent staff, customers and anyone else from stealing from your business. If you have a retail premises then make sure you have anti-theft systems, such as CCTV, tags on products, visible security staff, etc.
Ensure you have sufficient procedures and practices in place to discourage staff from stealing products, cash, etc. Implement extra security if theft is becoming a problem for your business.
Make sure all tills are balanced / reconciled at the end of the day. Check that any cash that's taken to your bank is actually paid into your account. Any cash held at your premises should be secured in a safe overnight if it's a significant sum of money.
Inventory and stock control systems and procedures can help ensure that goods aren't stolen from your business. Constant monitoring will quickly show up if any pilfering is taking place by staff or shoplifting by customers.
Take massive action now and your profits will keep rolling in year after year
Spend as much time as you can on 'increasing your profits'. Even if you find the entire process boring and tiresome, it's crucial that you take action now to ensure the profits keep coming in.
You need profits to reward yourself and co-workers, and to invest in developing new and existing products / services, marketing strategies and improvements in productivity and efficiency.
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