Improving Your Profitability
To Improve your profitability it is essential that you maximise your profit opportunities and efficiency, while retaining control of your costs.
As a statement this is about as useful as Buy Low – Sell High, easy to say but what does it mean? We are going to look at how in three stages.
Adapt and Change
There has been a shift recently by consumers from visiting bricks and mortar businesses in favour of online. This has become even more prevalent since lockdown due to COVID-19.
Albeit this shift has been a negative effect to many small businesses, there are small businesses that have adapted their business model and pivoted. These businesses are now thriving as a result of improving their website, improving SEO (Search Engine Optimisation) and strengthening their online offering.
Constantly evaluate your business, if you do not adapt and change, you will get left behind. It is worth remembering that Blockbuster Video, the worldwide video rental chain.
At it’s peak, in 2004, had in excess of 9,000 stores employing 84,000 people.
CEO, James Keys said In December 2008, ; “Neither RedBox nor Netflix are even on the radar screen in terms of competition. It’s more Walmart and Apple.”. In September 2010 Blockbuster Video filled for bankruptcy.
A thorough Strength, Weakness, Opportunity and Threats analysis is a strategic planning technique used to help identify strengths, weaknesses, opportunities, and threats related to business competition or project planning.
Strength and weakness are internal factors that you can effect, while opportunities and threats and external factors such as political, social and environmental. Getting an understanding of your SWOT will give a clear view of the business, this allows you to effectively plan.
Maximise Your Profit
Look long and hard at your business and decide which parts of your business are generating the majority of your profit and which parts of the business make little or no return.
If you identify that 50% of your effort generates 80% of your profit, and that the other 50% of your effort generated only 20% of your profit, there is a case for putting at least 80% of your effort and resources to improve the already profitable area.
Also, look at the area that is under performing, try to identify how you could make it more profitable. Would you be able to streamline the processes, are you obtaining a good gross profit as a percentage of turnover.
When a struggling business is sold for below market value as part of a rescue package, the first thing the buyer usually does is to sell off non-core or non profitable parts. Therefore allowing investment into the more profitable sections of the business.
Stop spending time on the things that are not Generating you enough profit vs the time and effort required.
Efficiency and Productivity
Carry Out a Time Audit
How efficient are you with the utilisation of your time?
Many small business owners are always incredibly busy. Often working excessive hours. However, are you utilising your time effectively.
Start by recording how you spend every minute of your time, write it down and look at reducing the time spent on task that are not generating income – and investigate how to automate, delegate or remove them.
Automate wherever possible
How much does your time cost? Many small business owners will undervalue the cost of their time.
Every hour lost to admin task should be classed as a Cost of Lost Opportunity – ask yourself “what could you do with that time to generate more income?”
Invoicing and Payment
An example of automation was recently observed at one of our small businesses. It involved in supplying services to local consumers/ householders on a weekly basis.
Clients were invoiced manually each week for work completed and the business owner would then send the invoice for payment.
The client would they make a bank transfer to the company for the invoice. The business owner would then check the bank and reconcile payments made by the client.
In the event that the invoice hadn’t been paid, a follow up email would be sent, and if still unpaid a telephone call was made to chase the payment.
By switching to an invoicing and payment provider, in this case Freshbooks, the invoice was generated with a link to make payment. A process which proved easier for the customer to pay the invoice, in most cases the customer paid immediately on receipt of the invoice.
It also is improved cash flow for the business and cut out having to raise manual invoices. Also it reduced time spent reconciling the bank account with outstanding invoices, as any unpaid invoices would show on Freshbooks as outstanding.
The cost in terms of subscription to Freshbooks to the business is under £20:00 per month. £20 a month saving at least 10 hours per month.
Online Booking & Staff Schedule
Another time consuming task is allocating Jobs and schedules. However, a quick win is to set up a online or cloud based schedule. Many will automatically allocate work to team member.
Even better is to have an online booking system on your website. There is no better feeling than waking up in the morning to a new a booking that has already been made and allocated to a team member.
Reduce amount of time doing things twice
As businesses grow, inevitably they have more fat and often become less efficient. Keep a close eye on every expense, from utilities to rent and rates to personnel.
Is there an opportunity to reduce these costs and continue to trade at the same levels?
Startup businesses are usually lean and efficient, as they grow they develop fat. Established businesses may become less re-active to the market, ensure you retain your startup mentality.