Top 7 Ways To Manage Your Costs And Cash To Boost Your Profits
By Kate Marsden
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Here are 7 tips on how to better understand and manage the cash and costs in your business to put you in a more stable position and help increase your profits.
- Get creative about cost control
Ask your team for cost cutting ideas, and the chances are you won't be flooded with ideas. Now imagine you ask - and offer half of any savings made for their chosen charity (or even more radical, a team night out/weekend away/5 star holiday!). Be generous with what you offer up and you'll get more ideas than you can handle - and you'll find ideas magically get pushed through on their own.
- Offer benefits for early or up-front payment
Help your cash-flow by encouraging people to pay upfront rather than on delivery. Be prepared to offer an incentive - but it will be worth it to get the money in the bank.
- Get into subscription services
Subscriptions are big these days - a small amount of money every month or week in return for regular products, information or services. Recent examples include snacks, toiletries, development DVDs and even underwear! Think creatively about what you can offer in your business on a weekly and monthly basis that will hook people in to low value but regular purchases with you.
- Know your profit - by client, customer or product
If you know how much money you make in the business, do you know how that breaks down by customer type or product? Often profitability works on the 80/20 rule - 80% of your profit comes from 20% of your customers or products. Do you know which the best 20% is? And are you managing them in a different way. To be really radical, maybe you don't actually want to do business with the bottom 20% who cause 80% of the grief and none of the profits.
- Understand the cost of your business mistakes
All businesses make mistakes and have error rates. Don’t beat yourself up about it – but do learn from it. Where are your mistakes wasting you money – returned products, faulty goods, repeat calls, complaint handling etc. Each thing may be small but if you look at it collectively you may be surprised how much your profit is reduced by making mistakes.
- Chase payments
Another way to improve cash flow is to get payments done quicker. Look at how you can do that in your business - payments up front, discounts for early payments, 30 day payment terms and so on. In the event that people are late paying, never assume it'll turn up in the end. Get on the phone straight away and keep pushing. Big businesses are often worst for this - they can pay, they just choose not to or have long internal processes. Get to the top of their list as soon as you can. If everything else fails use an agency to collect the debt - the cost will be minimal compared to what you could lose.
- Don’t just focus on turnover and sales
There is nothing like the buzz of landing new sales – but you have to convert revenue into profit. Understand some simple numbers - at 5% profit margin you have to sell £20 to make £1. At 10% you only have to sell £10 to make the same amount. Which would be easier in your business - doubling your sales or doubling your profit margin? Sales people are brilliant at telling you the revenue they have sold. But remember - if you pay a salesman £50,000 and you make 5% margin they have to sell a £1m contract for the profit to cover their salary for a year.
Want help improving your profits? FREE reports to help Small Business Owners stop falling for the myths and start understanding the real rules of profits. Download instantly for fast profit results! Kate Marsden is The Profit Mechanic and gives resources, tools and support to Small Business Owners to improve their profits. Read more about The Profit Mechanic here.
Article Submitted On: December 05, 2011