Five Tips to Improve the Profitability of Your Small Business
Although the old saying goes, “Cash is King”, a healthy cash flow is no good if your business is in the red. Profit is what drives your business; you cannot grow and expand without it. Here are some simple ideas that will help you improve your bottom line.
Control your expenses
Consider implementing a zero-based budgeting system (ZBB). Under this system, all expenses must be justified for each new period rather than blindly assuming that previous expenditure levels are acceptable. Build your budget based on what is actually needed, not what happened last year. ZBB can help control costs by making you think about every expense rather than relying on last year’s figures with a percentage added for inflation.
Control your inventory
If your business requires you to maintain inventory, make sure you know what is selling well, and what isn’t moving. Don’t rely on your ‘gut feeling’, check the figures so you know for sure. Adjust your purchasing as needed so that you don’t have stock sitting on shelves and gathering dust for long periods, tying up your cash.
Increase your margins
You can increase your profitability by either increasing your prices or lowering your costs. Shop around for the best deal from your suppliers, and ask them for a discount or special incentive for being a good customer. Analyze your prices regularly. People understand that prices of all goods and services will rise; you’re unlikely to lose customers due to a price increase so long as you remain competitive. Avoid raising all your prices by the same amount or percentage at the same time. Instead, consider each product or product line individually, the level of demand, and what your competitors are charging. Mark-ups shouldn’t be based solely on your input costs; you should incorporate into your pricing mechanism what the customer is able, and willing, to pay.
Know your customers
The 80/20 rule that applies to so many aspects of business, also holds true for sales. Just 20% of your customers generate 80% of your sales, so it makes sense to know who this 20% are. Maintain a database of your customers and their buying habits. Know who your best customers are and offer discounts and other deals or incentives to keep them coming back. Think about setting up a referral system where an existing customer gets a discount or benefit of some kind in return for sending a new customer to you. Keep in touch with your customers; always ask for email addresses and keep ‘front of mind’ by sending out regular newsletters.
Seek add-on sales and keep your customers coming back
Increase your sales by offering ‘freebies’ when another product is purchased. Offer discounts for the first purchase of a new product or service; if the product is worthwhile, the customer will return. Everyone loves a free sample or a discount or a ‘special offer’, and customers like to try before they buy. Free samples or ‘trial offers’ will also attract new customers. That database of email addresses can come in handy here, allowing you to email offers to existing customers rather than paying for regular postage.
Author Bio: Peter Holtz, CPA specializes in providing accounting and tax services to small business owners and professional practices in Stockton, CA. For more information, go here: http://www.financialperformancecenter.com
Category: Advice
Keywords: CPA services, business advice, Accounting and tax services, outsourced CPA services