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7 Steps To Improve Your Small Business Profitability

Posted December 1st, 2012 by bbsadmin & filed under General Business, Motivation.

Following are seven steps that can help any small business improve it profitability.

1. Gross Profit Margin
Gross profit margin is calculated by taking the sales revenue and subtracting the cost of goods sold. This shows what your company is left with after paying off the costs associated with the production of your goods. When you take this as a percentage of revenue you are able to see how your company has controlled its costs. If costs are increasing you can either increase prices or decrease the cost of goods sold in order to become more profitable. If you want to make your business more profitable, you need to assess how profitable it is first. This ratio will help you understand where you stand so you know if there have been improvements in your profitability.

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2. Utilize Technology

ComputerThere are a lot of great products out there which can help you cut costs. This is especially the case for long distance communication. For example Skype allows for video chat over the internet for free. Gotomeeting allows for meetings via the internet. This can be a cheaper alternative to traveling long distances to present information if this is a common cost for your company. There are many other software and internet based products which are free or at very low prices. This is because the cost of data storage has dramatically decreased over the years. Some of these products have free editions for under a certain number of users. Generally after you reach the maximum number of users there is a cost for each additional user. Make sure you pay attention to the security measures these products have. You don’t want confidential information to leak over the web.

3. Target Marketing

You can start by really taking a look at your target market. Focus your efforts on your target market so that you don’t waste excess money on people who are not interested in your product. For example, if you are sending direct mail about your heating and air conditioning company to apartment complex residents who have such a service provided, it may be a waste of money in the short run. If you know the age, gender, income level, and tastes of the market that is interested in your product, you can save money by targeting your goods and services directly to them. Also, consider using email as a way of communicating with customers rather than direct mail. Direct mail can be very costly. If your customers are happy to receive emails rather than snail mail, it could save you some money. Some people prefer this method.

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4. Focus on Cash!

piggy bankWe commonly hear the phrase, “cash is king.” Cash flows keep companies in business. Sometimes businesses try to improve different aspects of the business, such as efficiencies, and lose their focus from cash flows. One of common issue with cash flows is low throughput, or turning inputs into outputs. This lower throughput can be caused by bottlenecks. It can also be an issue with demand, market share, or inventories. Successful businesses serve people, but most businesses are not run for charitable purposes alone. Business increase profitability by analyzing cash flows before taking on new projects and ensure these projects actually increase bottom lines. The bottom line of your business activities is to generate a profit.

5. Outsource Accounting

If your business has accounting needs but is too small for a full-time accounting team, outsourcing these accounting needs to a third party can be an option to look into. These businesses often have many types of services that can be helpful. If you don’t have experience in accounting, payroll, or bookkeeping, this can be an option to consider. Outsourcing your accounting needs can free up your time. It can leave you with one less thing to worry about learning how to do. It can also help you keep your focus on the things that are most important to helping your company grow.

6. Internet

It is a common verb to Google something now a days. Web pages are relatively cheap to get. You can submit your website to Google and other search engines to make it searchable on the internet. With the right search engine optimization techniques (SEO) you can be found by people searching for your products. Also, consider using social media such as Facebook, LinkedIn and Twitter as a way to find customers. Using these tools can help you with your advertising at a very little cost. Remember to be careful with what you post. The internet is a great tool when used correctly, but information can be passed along instantly, good or bad.

7. Take Care of Your Most Important Assets

Your most important assets are your employees. They can make or break the business. Make sure you are doing those things which will make your employees happy. Take the time to let them know they are appreciated. Small gestures such as complements on good work or a small gift card for reaching all the monthly or quarterly goals can go a long way. It makes it much tougher to be profitable when employees are unhappy.