Every business, small or large, needs money to keep it rolling. Often times, the profit, specifically the “profit margin” or the difference between sales revenue and business expenses; will dictate a business’ ability to sustain its momentum, grow, and expand. The good news is, it is not that difficult to achieve such.
As a matter of fact, it is usually true that in every market, the 20% of the businesses in their respective industries gain 80% of the profits. Even more, some businesses earn 10 to 20 times as much as their competitors.
However, that bad news according to Patricia Sigmon, founder and president of Davis Advisory Group (a firm that helps reengineer CEO’s and small and mid-sized businesses’ practices), nearly two-thirds of small businesses either didn’t make a profit last year or failed to increase profit from the year before.
And you definitely do not want to have the same faith. But how are you going to increase that margin and eventually become a part of that 20%?
Sigmon, (in an interview with The Balance) says that “small business owners need to change their practices to focus more on profit.” On that note, she shares some key strategies that small business owners can take on starting up on the path to profitability and improving bottom lines.
- Decrease cost by changing operating procedures
One of the key strategies to grow a small company and make it profitable is by looking at ways to increase revenue while decreasing the costs. In short, “generate more sales while reducing expenses.”
To increase sales, train and teach your staff some sales skills that could, for example, make customers purchase multiple products at one time. You might also want to try to offer new services and goods that complement your current offerings. Or increase your customer base, as well, by considering price discounts and promotions.
On the flip side, trim expenses by auditing administrative functions such as controlling stocks, evaluating the right suppliers, and minimizing business errors. Are there routine tasks that you can afford to eliminate to save money? Does your staff need training? Does your current energy supply company help you save energy?
- Maximizing cash flow
Offering an ongoing payment plan for your clients is one of the best ways to achieve a stable cash flow, says Sigmon. For example, instead of a hotel room stay at $150 per hour, tweak the offer and give the customer a discounted 3-hour stay at $120 per hour.
Although it might seem not lucrative at first because your hourly rate would be less, you will actually be billing for a greater total dollar amount. Moreover, this kind of strategy establishes a relationship locking your customer to a longer-term arrangement.
- Update and monitor management cost
Any kinds of business come with a lot of risk and variables. But if there is one thing that you can have full control is how much you spend.
According to GiveCampus’ CEO (a crowdfunding platform for schools), Kestrel Linder, “You should know where every penny goes and what you get for it.”
Therefore, the key is to automate your business. Carefully track and justify your expenses by creating a system that you can access and add data to and make sure that all information is updated and synchronized.
How much are your project fees and hourly rates? Do you have ongoing charges? How efficient are your employees? These questions need immediate answering and automation will help you do so.
- Look for partnership opportunities
Cost-efficiency is often a challenge for small businesses. For example, the cost of marketing generally ranges to thousands of dollars, but smaller companies have smaller-scale buying power than the larger ones.
The solution, says Omar Aguilar (Deloitte Consulting LLP’s strategy and operations leader and global strategic cost transformation leader), is to “reduce the complexity of your operations.”
Use the internet and give your business an instant online presence through social media platforms like Facebook, YouTube, and LinkedIn. Measure all marketing efforts (i.e., setting up group meetings using webinars, offer tutorials and demos, etc.) and evaluate which ones are the most cost-effective.
- Stay visible and connected
Thanks to the internet, you can now take your reputation online – on social media, websites, and blogs. But be mindful to tailor marketing efforts to your target audience. For example, if you are starting a business in Japan, you should be aware that one advantage Japan has over entrepreneurs from the U.S. (an economic rival), China (another rival over economic issues like world war and the Nanjing massacre), and other more countries, is the Instagram which is currently the most dominant tool for Japanese companies to market their businesses effectively.