Here are six little known profit holes
With interest rates on the rise and debt becoming more expensive, there has never been a more essential time to take a good look at your overheads and cost of sales.
Take our simple exercise to examine your cost base and maximise your profits in today’s market.
This article will look at the 6 most common profit holes that many small businesses may have.
Pricing: Has it kept up with your costs?
Often, the biggest profit hole we see with our clients is around a poor pricing strategy. Such as:
- Are your sales team discounting too much in order to make the sale? Particularly for wholesale or bulk orders?
- Have you kept your prices static whilst your costs have increased?
- Are your prices in line with your cost base now, rather than when you were a much smaller business. For example, if your prices have not changed since you ran your business from the kitchen table, then it’s time to revisit your pricing.
Do you have a revolving door of employees?
Hiring new staff members is expensive; recruitment agency costs, training costs and senior management time spent hiring and training. Losing good employees is even more expensive – both in terms of opportunity cost and also the hit on morale when a good person leaves. If you do have an employee turnover problem, it’s time to take a good look at how to increase the levels of employee engagement in your business. It’s also good to be honest and see how you personally may be part of the problem.
Software costs: Have you had a good look to see what you’re really using?
Those small subscriptions really add up over time. How many user licences are you still paying for but don’t actually need? How many of those pieces of software that you decided to try out are you actually using? If you used all the features of your core software, how many other licences or subscriptions could you ditch? You may find that a good look at your software stack could yield a large amount of money each month.
Suppliers: is it a good relationship?
If you have worked with a supplier for years, both parties can get comfortable and complacency sets in. This may may hide the fact that you are not getting the service you require and deserve. Even worse, the prices you are paying are now out of step with the marketplace. Inertia and a desire to avoid conflict can easily prevent having those difficult conversations.
What are your suppliers really delivering? Don’t be afraid to ask questions and look at alternatives.
Not using automation (particularly in your financial processes)
Cloud based digital tools will help your business cut out so much physical paperwork and manual entry. For example, if you are a small cafe or pub you can now get great phone apps that will allow customers to place their orders from the table. Thus, improving the efficiency of your operation and waiting staff.
Using bank rules, email rules and other types of automation in conjunction with software such as Dext can reduce the time it takes to do your books or manage staff expenses.
Doing it yourself
How long does it take you to do stuff which should be outsourced or done by others in your business? Particularly when it comes to things like bookkeeping or VAT returns, is often a false economy. Your time is much more valuable talking to customers and clients and running your business than puzzling over whether you can or can not claim VAT on your company car expenditure or that coffee with a client.
Using the right people and suppliers to free you up to do what you’re best at is often a great way to generate more profit. It goes without saying that we are always happy to talk about whether we are a good home for your bookkeeping and other financial processes.
If you would like to talk to us about any of the matters in this article please call 020 3915 8585 or email us.