Guide to Profit Improvement Techniques
How to light a fire under your business bottom line
By Donna Fenn
Every successful small business owner knows that there's nothing more important than keeping a close eye on the bottom line. Fortunately, there are a number of ways a small business can power up profits.
Common income-boosting strategies include offering employees incentives to sell more, cross-selling and up-selling to existing customers, expanding your product line and optimizing your prices. On the flip side, reducing expenditures, negotiating better discounts with suppliers and securing more favorable terms on loans can provide equal improvements in profit margins. Master the art of increased profitability and you will:
- Position your company for future growth in new markets.
- Forge strong relationships with lenders before you need them.
- Have a financial cushion if business slows down.
- Secure the financial resources to hire additional staff.
Action Steps
The best contacts and resources to help you get it done
Analyze your current financial position
Keeping a sharp eye on your balance sheet is key to improving profits.
I recommend: For instructions on how to do a break-even analysis, go to Businesstown.com. Microsoft's Small Business Corner will show you how to use Excel to analyze key performance measures such as cash flow and expenses, and analyze your company's current profitability with this virtual workshop at Bank of America. Go to The Profit Planning Group for benchmarking surveys to compare your company's profitability with industry averages. BizStats.com provides free comparative business statistics according to industry and revenue.
Control expenses
It's easy for expenses to get out of hand if you don't have a systematic method for keeping track of what you're spending. You need good small business accounting software and a reliable accountant.
I recommend: Compare small business accounting software at About.com and Top Ten Reviews. Go to Gaebler Ventures for instructions on hiring an accountant. For help finding an accountant, search the online CPA Directory.
Raise prices
Many small business owners are afraid to raise prices for fear of losing customers. But the truth is that most customers barely notice modest price increases, which can have a significant impact on profits.
I recommend: Follow the suggestions in Five Break-through Ideas to Immediately Increase Profits and Improve Cash Flow. Use the tactics in Inc. Magazine's "The Right Price."
Sell more to existing customers
Acquiring new customers is wildly expensive. Focus on increasing revenue from existing customers and you'll cut promotional expenses and increase profits at the same time.
I recommend: Increase Your Profits by Selling More will tell you how to "upsell" and "back-end sell."
Consider outsourcing
Focus on the key elements of your business and reduce personnel costs by outsourcing some of your back-office functions, such as human resources or technology services.
I recommend: Follow these tips for outsourcing at Microsoft Small Business Center. Go to IT Management News for advice on outsourcing IT. Read this HR Outsourcing Buyer's Guide at Yahoo! Small Business.
Tips & Tactics
Helpful advice for making the most of this Guide
- Do a thorough analysis of your company's current profitability and compare it with your industry's average.
- Review both your fixed and variable expenses; cut out the fat, like expensive office furniture, but be careful about reducing benefits and personnel, which may send a negative message to your employees and the marketplace.
- Fully engage your employees in all expense and cost-cutting efforts; ask for their suggestions and give them incentives for helping you reach your profitability goals.
- If your company is currently posting healthy profits, apply for a line of credit now — before you actually need it.
- Consider adding additional products or services that will complement your current offerings but won't demand additional marketing or advertising funds.
