5 ways to increase business profit
Every business wants to be successful but the reality is that 2/3 businesses fail within the first three years. In Australia as of 2017 roughly 4.8 million Australians are employed by small business.
By reviewing the following 5 methods you can increase your chance of having a successful business.
(Some top reasons for failure according to CFOs can be found here):
1. Review the Profit and loss monthly
Checking how you are doing regularly is critical to being successful. whilst sales may increase it does necessarily mean that a business is doing well. By keeping your finger on the pulse of your business you are actively aware of what is going on and can make changes quickly to change course as required.
It’s also very handy to know your break even point taking into consideration your fixed and variable expenses and where the break even number is in your key metric.
2. Review expenses for to benchmarks
Government organisations actually produce a lot of quality content to help small business. One of those is bench-marking provided by the ATO. The ATO each year releases information that gives a guideline of the main expenses as a percentage of profit that a business should be paid as an expense of turnover. The key ones are wages, cost of sales and rent. Not only is this a create tool to measure performance but is often used by the ATO to focus their efforts on who to audit.
3. Make sure you have a clear vision
Business planning is critical to your business success. You don’t aim an arrow into the mist and expect to hit a bullseye. The same can be said for business. By defining clear goals you can help create direction for yourself and staff to meet a common objective. No one plans to fail, they fail to plan. A full business plan isn't necessarily the best option as it can be time consuming but making a start on some key items such as a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and marketing plan are a great start.
Never forget the sales! Sometimes we get bogged down in the day to day running of a business and forget about actually generating income. It’s great to be busy but is it productive? Monitoring you sales should always be one of your key performance indicators in some way or another (number of leads, turnover per month, etc.)
5. Cash Flow
It may feel like we are moving nowhere but it may be down to the cash flow of a business. It’s important to measure the difference between cash and accrual profit to determine where the money is actually growing. An example of this is that a business is significantly growing and the debtors are proportionally increasing which will have a stranglehold on the business. Anther is assets such as hire purchases as cars which are payments which are not represented in the profit and loss and in the balance sheet instead.
Cash flow is so important to manage as you can get yourself in real trouble with your creditors that you are personally liable too.
These few tips should help point you in the right direction to have a more profitable business. Always continually change as business needs to continually adapt or die just ask Enron or blockbuster.
Powell Enterprises are small business accountants based in Wamberal on the central coast New South Wales that service between Sydney, Central Coast and Newcastle area. We cater to businesses from startup to under $50 million.