How to Increase the Profitability of Your Business
By Tom Greenbaum
Certified SCORE Mentor
This is a common problem, that is particularly evident in the organizations with whom I have worked over the past 9 years as a counselor at SCORE (service corps of retired executives).
It is particularly common to small business where there often are not highly seasoned management personnel to address profitability questions. There almost always are a few very basic reasons for this lower than desired profitability, which if you address, can provide a relatively quick and often easy solution.
The most common are:
Your own expectations
The first thing you must consider is whether you have realistic expectations of what your business can achieve.
This requires you to try and “benchmark” your situation by (a) talking to your accountant to see if this person has experience in other similar businesses to give you an idea of what they achieve (b) talking to your industry trade or professional organization to see if they might be able to give you some parameters (c) visiting the reference librarian at a business library in your town , as they often can find resources that provide profitability benchmarks for various businesses (d) do a Google search to see if there are any resources to help you, and (e) contact your local SCORE office (there are over 300 in the U.S) to consult a mentor for help.
Evaluate your pricing structure
Often, a small price increase will not effect the sales of your product(s) but could significantly impact your bottom line profitability.
Analyze your overhead
Frequently, one of the biggest issues with small business is the level of overhead they carry.
This can be manpower-related (too much staff) or due to such things as:
Health care costs are too high, and you need to talk too your providers or perhaps have your employees pay some of the costs of their policies.
You need to reduce or stop contributing to the 401K plans.
Excessive spending on either travel or entertainment
…..and many others
Evaluate your cost of goods
This is particularly the case for company’s that buy finished goods and resell them on the Internet.
In some situations we have helped clients identify lower priced ingredients to a manufactured item that will not affect the final taste or quality.
Have your account or bookkeeper help you analyze your aging of receivables report to identify possible issues.
This is one of the most common issues I see at SCORE with my clients. They are so busy running the business that the receivables do not get the attention they deserve.
You should be looking at an Aging of Receivables report at least every two weeks to identify problems that might need to be addressed.
Remember “receivables do not buy groceries, cash does.”
Address the absolute level of revenues you are generating.
Your problem might be a sales issue.
You might need to have more sales in order to achieve a higher level of profitability.
However, even if you are able to increase your sales, you must address the above items also if you want to maximize your company profitability.
I hope this was helpful to you. If you need additional help, you might consider reading my latest book: You Can Do It; A Guide to Starting and Running a Small Business – 2018 Edition (available on Amazon , Kindle, iPad or where ever you purchase your eBooks.
Finally I highly recommend you contact your local SCORE chapter by going to www.score.org to find the chapter closest to you.
Certified SCORE Mentor
New York Score