A new year, a new approach. You’ve done some reflecting and reevaluating on your business over the break. Now you’re entering the new year with a fresh perspective and you tell yourself this one’s going to be different. The evolving landscape of business has created some ups and downs for you and undoubtedly impacted profitability. You’re ready for change, growth and to run a more profitable business this year. Read on as we uncover 5 tips on how you can do this!
1. Be aware of your finances
A common pitfall for many small business owners is a lack of awareness of their finances. The reality is, you can’t improve what you can’t measure. It’s important to be across what is going in and out of your business, as well as what’s giving you a ROI. Some pointers to consider are:
- Know how much it costs to run your business. These include your essentials such as rent, equipment, software or services.
- Review your expenses to ensure you’re spending wisely and what’s necessary for your business, or will provide you with a return on investment. Check out our article on How to use Xero’s Profit and Loss report to make smart business decisions and more profit.
- Review your rates to make sure you’re charging enough. Consider the market rate, what your competitors are doing, the value you’re providing and inflation.
If you’re struggling to stay on top of your finances, consider hiring a bookkeeper to keep you up to date with your transactions, manage your cash flow and ensure your financial records are accurate.
2. Monitor your KPIs
Having key performance indicators (KPIs) gives you clear targets to aim for in your business. They reflect your goals, are measurable to allow you to spot what’s impacting your profit, track progress and empower you to change the course of action if required.
For example, you can monitor your staff/contractors’ hours per service, or how long it takes to complete certain tasks or a specific process. If there are signs of inefficiencies, this will affect your bottom line – so you know what to add or eliminate to enhance profitability. KPIs for your team also empower and motivate them to work towards their individual objectives that will contribute to the company’s overall success.
3. Identify your most profitable products & customers
If you’re kept on your toes with delivering your products and/or services but haven’t taken a closer look to see which one specifically is bringing you the most income, it’s time to investigate! Knowing which particular product or service is giving you the best ROI means you know exactly where to direct your resources and energy to increase your profits.
The easiest way to do this is to hop into your accounting software (i.e. Xero) and retrieve a sales report where it will demonstrate a breakdown of how much income you’re receiving for each product, service or customer. Rank each one from highest to lowest and you’ll soon be able to see which areas are/aren’t providing a return for you.
From here, you can make a call on what you want to do to make improvements (e.g. discontinue the product, reduce the price to increase sales or focus on your top income earners). Also, now you know which are your top revenue customers – this is an opportunity for you to hone in and find more of these similar customers.
EXTRA TIP: For each product/service, you can also detail the expenses related to each one. Even though it may appear as your ‘best seller’ due to quantities of sales, if it’s costing you too much, it’s not necessarily your best performer.
4. Trim excess costs
A part of increasing profitability is to be intentional with your spending. Less profit could be a result of the costs of doing business. Look at trimming excess costs that aren’t contributing to your productivity, increasing profitability or providing minimal value to your business.
Here are a few ideas to get you started:
- Subscriptions: Do an audit of your subscriptions and ask yourself what’s truly necessary or adding value. On the flip side, could you add or replace a software subscription that’ll increase productivity and profitability?
- Bank fees: Are there ways to reduce or eliminate certain bank fees? Whether this is through changing banks that are charging lower fees, or if you’ve got multiple bank accounts opened – cut costs by closing unused accounts.
- Buy effectively: If you’ve got existing stock, try moving this inventory first before purchasing excess new stock. Otherwise, this leads to cash tied up in too much old stock, having to give higher discounts and less profits made.
- Marketing costs: Make sure you have a plan in place to ensure your marketing budget is purposely invested and geared towards your goals. For example, are you investing in channels where your target audience hang out? Which skillsets are you outsourcing to ensure the most efficient use of your time and money?
5. Increase productivity
Productivity is connected to your profits. We all have the same amount of hours per day – how we choose to spend it, is what matters. Run a leaner business by operating more efficiently. Optimise processes and eliminate unnecessary busy work that’s sapping up your precious time. Leveraging technology will boost productivity, automate manual work, and free up space for you to focus on high-value tasks.
Outsource help in areas you struggle with and aren’t in your ‘zone of genius’. For example, you might dread bookkeeping – it costs you a lot of time, money and headaches doing it yourself. A good bookkeeper will go beyond ensuring you maintain IRD compliance, they also ensure your accounts are managed accurately and pre-empt issues before you’re aware of them.
Clean up your processes and maximise profits
At Honeybooks, we’re bookkeeping pros who love giving our clients their time back, not only by taking care of the numbers but also by helping you to automate repetitive tasks and tedious processes. Let’s be honest, you didn’t get into business to be chained to your desk and wrestle with numbers and receipts. We’re the kind of A-type unicorns who get high on details and get a kick out of the beautiful sight of Xero’s green tick.
We love what we do, and we do it well.
So, wanna chat numbers?
Book a 30-minute chat with us; it could be the most profitable 30 minutes of your year.
Comments +