Sometimes you can be so focussed on carrying out the day-to-day work in your business that you don’t have time to sit back and reflect on what you can do to increase profit! Here are some ideas of how a small business may increase profitability. Obviously, there is no one fit all list, hopefully though, there will be a tip or two that will be of use to every small business.
It seems an obvious thing to say, but to increase profit you must either reduce costs or increase income.
Join a trade buying Group
Many small business struggle to compete with bigger businesses due to bigger businesses having more buying power. I.e. when they order in large quantities, they get volume discounts. One way to assist with this is to become a member of a buying group for small businesses, who can collectively benefit from larger order quantity discounts.
Early payment discount/other buying discounts
Many suppliers are willing to give discounts for early payment of invoices. It is worth checking if it makes sense for you to take advantage of this. Also, while you are at it, what other discounts are available such as for production runs at off peak times etc.
Cost of borrowing/capital costs
Is your debt and capital structure the most efficient for your business? Could restructuring reduce interest and finance costs?
Are your taxes correct? Are you getting penalised for late filing and overdue payments? Have you considered the various trading styles such as limited company, limited liability partnership, partnership, and sole trader? Are you claiming all the allowances you are entitled to?
With increasing electricity and gas costs, utility bills can be a significant cost for small business. It is definitely worth checking that you are on the best tariff and would you benefit from switching suppliers.
Quality v price
Do you have the correct balance between quality and price with your purchases? Sometimes buying the cheapest can end up more expensive in the long run! For materials, is poor quality wasting valuable production time or is there increased waste? For services would you benefit from higher quality support that could save you time, risk or increase your profitability? Of course, it is always difficult to find the right balance between quality and price. It should become habit not to look for the lowest price but to search for the best value!
Are you struggling to juggle everything? Would you be better off outsourcing certain activities such as book-keeping, HR, health & safety and marketing, in order to free up more of your time to spend on the business?
Are your staff working as efficiently as possible? It is worth reviewing employee morale? Maybe more breaks, better conditions, training or increased bonuses would increase productivity. Is your business seasonal with reduced demand for periods of the year, then instead of staff just sitting there with nothing to do, have you looked at dealing with the more demanding times with solutions such as agency staff, sub-contractors and outsourcing?
Are your business processes efficient as possible? Possibly investment in new machinery, digitalisation or training could help.
What is your return on investment on marketing? Surprisingly few businesses actually know this. You should see marketing as an opportunity not just a necessary cost. When was the last time you did a full marketing review? Are you reaching the right people, at the right time, with the right message to drive the sales in your business?
Is your pricing strategy correct? It is a common error that many small businesses under price their products and services, especially when they are starting out! Have you considered the market fully, what do your competitors charge and how do your products/services compare to theirs? Have you found the sweet spot between volume and profit per sale?
Expand complimentary services/products
Could you sell more to your existing customers? Have you thought about offering complimentary services/products that they are buying elsewhere?
Have you considered increasing the geographical area that you sell to? Naturally, care should be taken here as expanding into new geographical areas could cause other problems.
Do you have a commission or bonus structure to encourage others to drive customers to your business? This could be for staff, customers and/or others.
Are you building up the right business network that could provide you with referrals? Do you always thank people that make referrals to you?
Hopefully you will find some of these ideas thought provoking. We offer many bespoke services that could increase your profitability, contact us to find out more.