“Hopefully, my business will be profitable one day.”
Most business owners think of profitability as an event that will happen “someday.” They are hopeful that one day, if things go just right, their business will support them and they will be able to live the coveted entrepreneurial lifestyle.
This sort of thinking makes profitability seem unattainable and mysterious, when in fact profitability can be attained by implementing a series of tricks and positive habits. When you start thinking of profitability as something you can influence, you stop relying on fate and start looking for ways to make it happen sooner rather than “someday.”
While there is no one magic wand you can wave to ensure profitability, the following suggestions will get you closer, starting today.
1. Change your credit card number
We are all guilty of signing up for things we never use. Whether it’s a recurring charge for an app you never implemented, a membership to an education site you rarely visit, or a subscription to a professional journal that piles up unread in a special folder in your inbox, you probably have a handful of small recurring charges on your credit card each month you should eliminate.
Contacting these vendors individually is cumbersome, and since many subscriptions only renew quarterly or annually, you have to repeat the process for several months before you have finally canceled everything you no longer need. If you change your credit card number, though, you will immediately stop all your recurring charges. This forces you to be mindful about what expenses you keep and which ones you let go.
As an added bonus, changing your credit card number every so often reduces your risk of falling victim to fraud.
2. Hire the best employees available
This one may seem counterintuitive. After all, you pay more for highly qualified employees than your entry-level staff who need training. However, the right employee in the right position will do far more work far more efficiently than 3 or more less-qualified employees in the same position. Hire carefully, though: Even the highest qualified employees can be a burden rather than an asset if they aren’t in alignment with your business’ mission or goals.
3. Raise your prices
Whoa! Won’t this send my customers running to your competitors? Actually, it probably won’t. This is another tip that may seem counterintuitive, but your customers probably don’t buy from you based on your price.
Depending on your margins, you might be able to raise your prices, decrease your sales volume, and still produce the same profit. A decrease in sales volume frees you to work on new, even more profitable products and services, but there’s no guarantee your volume will decrease with a price increase. If it doesn’t, even a small price increase will instantly boost your profitability.
4. Analyze your profit centers
You have probably heard of the 80/20 rule. This rule—also known as the Pareto principle—says 80% of your results come from 20% of your efforts. The corollary to this is that a mere 20% of your results require 80% of your effort. So it just makes sense to focus on the 20% that generates 80% of your results.
How do you do this? If you sell a tangible product and use a point-of-sale system, chances are you can access a report built right into your system that will show your most profitable items. If you sell a service, or if your point-of-sale system won’t calculate this for you, your accounting system can be configured to produce this information by using class tracking.
You need a separate class for each profit center as well as one for overhead expenses. Assign a class—or in some cases multiple classes—to each transaction. You can then produce a profit and loss statement by class and easily see which profit center produces the most profit for your business. At this point, you might choose to either focus more attention on the most profitable products or services, or you could eliminate the less profitable products or services.
5. Stop tripping over dollars to save pennies
As a bookkeeper, I often encounter resistance from my clients when I suggest an app or software to improve efficiency. When you are trying to reduce expenses and increase profitability, it is easy to fall into the trap of thinking all expenses are bad.
Sometimes, though, an expenditure that seems like an expense, or even something like a small business loan, can actually be an investment that will yield an increase in profitability. As long as you remain mindful of the expenditure and measure the results in relation to the cost, you don’t have to worry about the expense becoming another unused subscription on your credit card statement each month.
6. Use multiple bank accounts
For years, I tried to help my employers and my clients budget using cash flow forecasts in Excel. I still love building cash flow forecasts in spreadsheets, but they don’t work for most business owners on a day-to-day basis.
Without fail, we check our bank account balance and make seemingly small spending decisions based on what is in the bank that day. Those small spending decisions accumulate rapidly, and before you know it, it’s payday and you are short by $1,000.
Using multiple bank accounts ensures that your most important expenses—payroll, taxes, etc.—are covered, so even if you do make a snap decision based on your operating account balance, you reduce the chance you will have to use debt to fund a critical expense. You can further leverage multiple bank accounts by using the Profit First method to proactively save for your profit.
Hoping your business will be profitable “someday” keeps profitability in the future and seemingly out of your control. When you mindfully look for ways to increase your profit and establish positive habits to make it happen, you will achieve profitability much faster. It may even happen today.
from Fundera Ledger https://www.fundera.com/blog/get-profitability