Profit maximisation should be one of the key goals of any small business. With rising costs and wavering customers, it’s becoming more and more crucial for businesses to scrutinise their bottom line.
Whilst keeping an eye on top-line profits is essential, current profits can only provide so much information. Analysing your business as a whole is the best way to look at how to save money and increase revenue.
Exploring ways to maximise the potential of your profits and increase sales can unlock additional revenue. Business leaders can focus on several things when trying to understand how to maximise profitability. We’ll look at them in more detail below:
1. Look At Your Business Costs
We’re all aware that business costs are increasing. From rent, utilities and wages to insurance, postage and manufacturing costs. It’s impossible to price your products right without knowing the exact costs your business incurs. This is why it’s important to know your business’s costs, monitor them regularly, and reduce them where possible.
One top tip to keep on top of costs is to have a basic understanding of financial accounting. Good cloud accounting software can really help you get to grips with the financial side of your business, reduce admin costs and avoid a lot of human error that occurs with spreadsheets.
They are also more secure and can’t be duplicated, so everyone in the organisation works with one true set of data. Another benefit is that they help you track costs to ensure any cost-based decisions you make will improve your business’s profitability.
Consider using a Shopify subscription app to streamline your e-commerce operations, such as inventory management, order processing, marketing, analytics, and more, to enhance your efficiency and overall performance in the online marketplace.
Along the same vein, small businesses with larger employee numbers could consider using an 8×8 predictive dialer system which keeps phone calls moving and can reduce staff downtime between calls.
2. Monitor Your Profit Margins
Over time, these can fluctuate, so it’s important to understand your profit and loss statements and know what each product makes your business so you or your team can continue to monitor, assess and adapt pricing strategy and shop around for better deals on wholesale products.
When you know exactly what your business costs to run and have run a good sales analysis, looking at average sales and the length of time your stock sits around, a clearer picture of how to reduce costs, price products right, and improve your profit margin will emerge.
3. Keep an Eye on Your Cashflow
If you have good accounting software, cash flow management software can give you a good overview and help you improve your cash flow.
If you’re selling a product on an invoice basis, your cash flow can be affected. Outgoing products need to be replaced, but if you’re not going to be paid out for a while, this can tighten your budget. In this instance, review and reduce invoicing terms and make sure you’re sending invoices quickly.
4. Look at Money Tied up in Unsold Stock
In a similar way to allowing credit, unsold stock sitting on shelves equates to money tied up and poorer cash flow. It’s commonly known that buying in bulk is cheaper, but if you’re not selling in bulk, it can be a problem.
Your ‘out-margin’ can be affected if these products have to be discounted or put on sale to sell. Any reduction in prices is a reduction of your business’s profitability. It may be prudent to calculate if purchasing smaller orders would improve profitability, and if it won’t, look at ways to increase your customer base.
5. Look At Low-Cost Ways of Increasing Visibility
How is your online presence?
Being a small business no longer means your customers have to be local. Increasing your online visibility can be a low-cost way of accessing new markets and growing your business.
Depending on your skills, you can improve your SEO, social media content and newsletter for a minimal cost. Even if you have to invest in training or an online marketing specialist, you can open your business up and tap into the global market.
For example, Singapore is one of the fastest-growing markets in the world. By investing in low-cost sg domain names, you can tap into the market and reach not just clients but suppliers just as well as local businesses can.
Another example could be a small town restaurant that can maximize profitability by closely monitoring expenses, utilizing a reliable point-of-sale (POS) system to streamline operations, and expanding their reach through online platforms. By managing costs effectively, leveraging technology for efficient financial management, and tapping into the power of digital marketing, small town restaurants can attract a wider customer base, increase visibility, and drive revenue growth, ultimately achieving long-term success in a competitive market.
Increase Profitability With the Right Tools
Increasing profitability for small businesses is a manageable task with the right tools and data. Having up-to-date accounting software means managers can monitor key financial reports regularly and get a grip on financial accounting. Understanding your finances thoroughly can really help SME leaders to make decisions around maximising profitability.
