Start building profit today
How can you build profit now?
First, let's talk about what profit is NOT. Profit is a result of, but does not consist of the following:
Goodwill and reputation
Sweat Equity
Your future plans for the company
Brand loyalty
Competitive advantages
And more!
As the business owner, you know what it takes to build profit using all of these strategies. However, don't get caught up in your profit numbers entirely. Remember that the end goal is to exit your business with your head held high. Numbers are only part of the equation that will allow you to do this.
So if your profit numbers are not where you want them to be, do not fear. Here are some simple and effective strategies you can implement that will yield big results.
Start with the price that your customer is willing to pay:
There's a simple three step process to starting any business, and many owners skip out on the second step. First, find something the market needs or wants. Second, find out what the market will pay for this need or want. Third, don't spend all of your money. Easy, right? The sad truth is that many founders will start with what it costs to build, acquire or deliver this market need, then add their mark-up in order to find the sales price. Are you one of these founders? By surveying and asking the market what they would pay, you find out if either your cost is too high, or if you're leaving money on the table. If you've never done this exercise, it's not too late. Survey your customers, your prospects, your target audience. Ask them what they would pay for your product or service, then compare that answer to what you actually charge your customers. The result may be eye-opening!
2. Cut unnecessary fluff:
I'm guilty of this. I can be a salesperson's dream come true because I have been known to rush into buying things that I don't need. For example, I used to have subscriptions to things I never watched, read, or used, but I would pay monthly and annual premiums. Somehow in the moment, I thought that I needed that subscription for whatever I was thinking of. In essence though, I was not treating my money as valuable as I should have been. Are you also guilty of spending your money on frivolous things? An expense audit is a cathartic exercise to go through on a regular basis.
- Download the last 12 months of expenses charged to your debit and credit cards
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You are looking for expenses that you don't need. Maybe at one time they served you a purpose, but now it's simply wasted money. What we want to do is get you to earn an investment on this expense. Your ROIC. (see above) If the expense is being wasted, there's a negative return. Let's turn that expense into an investment by redirecting the money to another source that will serve you better. Call it a budget, a spending plan, an investment, whatever you want. The goal is to make your money work for you, not the other way around, which will ultimately increase profitability.
3. Leverage technology:
It's a fact that robots and artificial intelligence are replacing some human jobs. I'm not going to get political or philosophical here. What I will say is that technology can help small business owners be more efficient and even scale, if used correctly. Where can you leverage technology in your business? What task can you "outsource" to make your life easier? Technology is a tool, but make sure it is serving a purpose in your organization. Be choosey and analyze it carefully if employing it for your company. If used correctly, technology can help you be more efficient, scale, and ultimately increase profitability.
4. Over deliver on customer service:
Here is a simple and easy competitive advantage that many small businesses have over large enterprises - customer service. Because you are the owner of a "small business", you have the control over what your customer experience is like. Survey your current and past customers to see what type of experience they had and how it could be improved. Then over-deliver on their expectations! Take personal responsibility for any issues they may have. Make sure their problems are resolved quickly and painlessly. This will lead to raving customer reviews, which lead to word-of-mouth referrals. Ultimately, this increases your profitability! Win-win for everyone!
5. Focus on what makes the most money:
How many products and services do you offer your customers? Have you ever analyzed the profitability of each line of service or product? If you did, which product or service would be the most profitable? Which one is costing you money to deliver? We can't be all things to all people, which means that you can't have multiple lines of profitable services. Find out which services are most profitable for your company and cut the rest. By focusing on what makes you the most money, you'll be able to scale faster, be more efficient, and ultimately build a more profitable business.
6. Make strategic decisions:
All of these tips and information is to simply say, that you must make strategic decisions. Keeping the end goal in mind, whatever that is, will affect your day to day decisions and outcomes. Every purchase, hire, sale, and move you make should be for the sake of profit. Because profitability will get you closer to your goal. Strategic decision making is the responsibility of the CEO and owner of the business. Making decisions through a financial lens gets the owner and CEO closer to the established goals in a shorter amount of time.
Therefore, start with the end in mind. Think like a buyer when you make your operational decisions. What will increase the profitability of your company and be attractive to a buyer? Watch for trends in the company's financial statements over time. For example, one month of negative profit is not necessarily a "bad" thing, especially if you're launching a new service or going through internal changes. But several months in a row of negative profit means something entirely different. Look at your customer habits. Read about what's going on with your competitors and in the economy in general. All of this information is powerful for you, even if all you sell are simple widgets.
Be strategic about everything, and best to be strategic through a financial viewpoint.
“Profit is not something to add on at the end, it is something to plan for in the beginning.” - Unknown author
Profit should not be a mysterious and vague dream. Profit is an attainable goal that must be strategically calculated and planned for.
If you need help going through your financial statements and making strategic decisions, contact me. I help business owners increase profitability, pay themselves a fair wage and get ready for the next chapter. Visit my website at www.audaxwealth.com or email hello@audaxwealth.com to schedule an appointment.
