There are many advantages to running a small business. And there are lots of areas to explore in improving your profits. You have the flexibility and independence to make your own decisions, you can turn your vision into a reality and then reap the rewards.
However, there are financial risks and it can be difficult to make a profit, particularly when times are tough and there is strong competition for customers’ dwindling dollars.
In fact, many small business owners are currently taking home less than the average full-time adult wage, according to the Small Business Matters report by the Australian Small Business and Family Enterprise Ombudsman.
If the way you have always run your business isn’t creating the returns you want, it may be time to try doing things differently.
There are lots of areas to explore to improve profits. The good news is that many don’t require extra expenditure, just a different way of doing things, or a new mindset about your core clients and products.
Here are nine ideas that could boost your profit margin and help improve the return you receive from all the hours you put into your business.
1. Go digital
Consider whether it’s time to add some digital solutions to improve the efficiencies within your business. Many manual tasks related to payroll, regulatory requirements and business reporting are ripe for automation. Introducing new software or technologies can see a big reduction in the time required to complete these necessary – but largely unprofitable – tasks within your business.
2. Understand your cash flow
3. Collect what you’re owed
Taking steps to enhance your post-sale credit control may lose you a few customers, but these are usually the ones increasing your servicing costs by failing to pay on time.
4. Keep on top of essential reporting
Ensure all your business reports (such as BAS, Taxable Payments Annual Report, Single Touch Payroll and tax returns), are up-to-date and lodged online to save time and keep on top of your obligations. It’s also important not to forget your Super Guarantee records and payments, or you risk paying the Super Guarantee Charge.
5. Improve your visibility
Consider whether an enhanced social media presence could spread your message further. Check if your website and Google ranking are properly optimised. If Google cannot find you, potential customers are unlikely to know you exist.
6. Keep your customers close and sell them more
Think about the potential for selling more to your existing customers. Upselling – or the old ‘Would you like fries with that?’ – can add to your bottom line without the costs associated with finding and selling to new customers.
Check your customer ‘churn’ rate to identify how long customers stay with you. Experts estimate it costs between five to 25 times more to acquire a new customer than to keep an existing one. Develop strategies to reduce your churn rate, as increasing retention rates by five per cent can increase profits by 25 to 95 per cent. i
7. Review pricing and products
8. Be ruthless about expenses
Audit your business expenses and identify any that can be eliminated or reduced by switching to cheaper suppliers or options (such as leasing and refinancing). Try negotiating if you are paying for recurring monthly services. Smarter spending on fixed costs is an easy way to gain extra dollars in profit.
9. Set aside time to plan ahead
Evaluate what is working in your business and what isn’t. Write a detailed business plan for the year ahead so you and your team know where you are headed and what is needed to get there. Consider outsourcing resource-intensive tasks (such as IT or marketing) to free up time so your employees can spend more time generating profits.