A business makes a profit if the revenue is more than your expenses.
For a business to be ‘more profitable’ either revenue has to go up, or expenses come down.
1. How do you track your business performance?
Can you easily obtain your business information? The use of Xero or MYOB or any of the other computerised program to record your business transactions is an efficient way to collate data. Used correctly, reports can be generated to give you information on how your business is performing, in the very basic form to see if your revenue is covering your expenses or to a complex level, it can predict your cashflow requirements. Spreadsheets or multiple spreadsheets are ok too, however often the time taken to update data or formula can make using these as tools to assess your business performance very cumbersome. The costs of the software can be spread over the year, and most are cloud based secure platforms, meaning you can access the data from anywhere on any device, anytime.
2. What are the sources of your revenue/Income?
Are your customers known and quantifiable or is your revenue dependant on finding customers? If your business revenue is dependent on external sources, have you invested sufficient resources nurturing your sources? If your customers are known and quantifiable, is your income recurring, and can you automate your billing and invoicing? Does your service or product fall into the ‘need’ or ‘want’ category, and if not, how do you communicate the value of your service or product. You can increase your customers through marketing, and prepare your systems for an increase in revenue.
3. What expenses are necessary in your business and what are not?
Many small business owners get caught up in buying a new car and/or paying for marketing activities that do not directly contribute to the revenue generation activity of the business. And conversely all too often small business owners do not spend money that is necessary for growth, like investing in training and developing their people or systems. A smart business owner spends what is necessary and doesn’t spend on unnecessary items.
4. Have you tried increasing your prices?
Price is only an issue if value is a mystery. Customers or clients only have a problem with the price of your goods or service if they do not see the value of what you offer. Communicating your value is an obvious option but filling a need and or pain point is what your customers desire and if you can do this, they will happily pay for it.
5. Is there a new activity (or diversification) that can be implemented in your business?
Reviewing your business to re-invent yourself can sometimes create a new revenue stream, and if it doesn’t require additional resources (or even better, less resources) the profit of your business is directly impacted. Do you have excess capacity for services and or goods? Is there a by-product that can be re-purposed for a revenue stream? Is there a service opportunity for your customers that offers a higher value that they will be willing to pay for?
Operating and maintaining a profitable business is not unattainable, but by making it a little easier by setting your business up for success with early planning, constant monitoring and strategic thinking and advice it will help you achieve your goals