Every business operates to make a profit. Without turning over a profit, your business will not be able to continue to survive. And with more than 60% of small businesses failing within the first 3 years of business, it’s not surprising to know that you need to develop strategies to improve profit within your business.
Business profit is a simple equation. Revenue - expenses = profit. Your business profit requires you to calculate all of your sales or income for the year, then deduct any direct costs (cost of products or materials and labour), then deduct all the expenses you’ve incurred in running your business. The amount you’re left with is your profit. If this is a negative number then it means you have made a loss and not a profit. When you calculate your business profit, it is usually completed on a financial year basis, to assist with tax and accounting purposes. However it is also important to review on a monthly or quarterly basis to ensure you’re on track to meet your goals.
Profit is important as it means that you are successfully bringing more income into your business than what you are spending. It’s also seen as a measure of your success and the efficiency of your business. Profit enables you to fund growth in your business. It can provide you with the working capital and money needed for reinvesting in your business and to reward the owner/s or shareholders of the business. And as we mentioned above, if you don’t make a profit, then ultimately your business won’t survive.
Chasing increased profit for your business is a never-ending journey. The continuous improvement process (or kaizen as it is named by the Japanese), suggests that you should be consistently aiming for continuous improvement in all areas of your business, including your profit.
To ensure that your business is profitable, it is all about being strategic. Increasing your sales or revenue isn’t always enough to improve or grow your profit. For example, you could improve your profit by being savvier with your time, automating processes, and doing things more efficiently within your business, without the sales or revenue increasing at all.
Is your business currently profitable? If not, what do you think is your biggest challenge to keeping more of what you earn?
There are multiple ways to use strategy to increase the profitability of your business. It’s all about learning how to maximise profit as best you can.
If you’d like to maximise your business profit, then there are a number of key strategies you can implement.
Strategies to increase sales revenue:
Strategies to decrease cost:
No business can afford to waste time or money. So it is important to identify potential areas of waste within your business and then have a process to remove that waste on a continuous basis.
Waste eats away at your profit. If you haven’t identified where you’re losing money, you can’t do anything about it. Chances are if you’re looking to grow your business, you’re looking to add more people to your team. But have you considered what a saving of 25% of your current expenses could do to your bottom line?
Committing some time to review your current expenses can not just improve your profit, it can create more efficiency in your business and free up your time.
Here are some examples of business waste. Can you identify any of these in your business?
Another strategy to improve your profit is to consider how you can improve your business capabilities. While it may not be the first thing that comes to mind when thinking about increasing your profit, the capabilities of your business has a direct impact on your overall profitability. Capability leads to efficiency, but too often business leaders feel that they don’t have time to build the capability, or even worse, they feel that they are capable enough.
Living in a technological world, you need to continuously improve and leverage new and emerging technologies. This doesn’t mean you have to be the early adopter. You can wait until the technology is proven, but when you become aware of a piece of technology that is saving people time, then it’s time to improve your business capabilities and adopt it. For example, if you’re not the world’s fastest typer, did you know that you can use dictation technology to do the typing for you (even on your iPhone)? This means you can dictate something in less than 25% of the time it would take for you to type it out.
Do you know that you can improve your business revenue by documenting what your best salesperson does and getting other team members to follow suit? Absolutely, and of course, it’s possible with business systems.
Having a systemised business guarantees the quality of work because your team will follow the same process, every time, down to the last detail. This eventually leads to reduced errors and increased sales, which positively impacts your profit margins. Documented business systems can have a dramatic effect on overall business results — enough to help a good company become great!
Thinking of systemising your business? Grab a copy of our guide on System for Creating Systems
Unproductive staff can increase the operating costs of your business. If your team is not performing their job efficiently, then it is likely they will be producing business waste and costing your business money. Which is why it is important that you strive for not only continuous improvement of your business processes but to also focus on encouraging a strong culture, where your team feels supported, empowered and are constantly looking for ways to improve.
Try to imagine a business where workers show up on time, only take scheduled breaks and work productively for their full shift. Add to that a business which makes full use of technology and automation and you can quickly see how you can achieve impressive profits, without even increasing your revenue or sales.
Related Content: How A Healthy Organisational Culture Can Result In Increased Profits
Once you have rethought various aspects of your business, to plan out your strategies for improvement, you should prioritise your key profit goals in order of importance. It's a good idea to write down your goals and the corresponding strategies to achieve them, and also how you plan to implement your strategies.
If you’re feeling overwhelmed with any of these strategies, then our experienced business coaches can help you through the process and have you feeling confident and well on your way to achieving your best profit ever.