Getting more sales and more customers sounds like a great prospect, doesn’t it? If you’re sending out more invoices and increasing your existing customer base, then it follows that you’ll also see a hike in profits, doesn’t it?
The answer is ‘Not always’. And if you’re increasing sales each month but not translating this into profits, you can get caught in a downward spiral of low profits, negative cash flow and outstanding debt liabilities.
How, then, do you improve your focus on profitability and start turning sales into solid end profits? Here are five key areas you can work on to enhance your financial management and create more business profit.
1. Understand your finances
One critical element of generating more profit is being able to understand and analyse your financial information.
This doesn’t mean becoming an accounting specialist – that’s our job, after all – but it does mean having more than a surface understanding of your accounts and what they mean.
- Learn the basic terminology – know the difference between profit and cash flow, revenues and turnover. Your accounts make a lot more sense when you speak the language.
- Get a good bookkeeper – a good outsourced bookkeeper will explain the end output of your financial activity and what it means for the business. We offer an outsourced bookkeeping service so please get in touch if you’d be interested in us running your books.
- Get your accounts done early – get an overview of your key numbers early in the year and give yourself time to resolve issues and generate better end results.
- Know your profit centres – understand how your accounts are coded and keep an eye on spending and budget targets for each pot.
2. Make sure your margins are correct
Keep an eye on your margins. It’s vital that you can be confident in making a profit on everything you sell – with that profitability built into the business, you know you’re bringing in revenues, but also generating end profit.
Review your prices and your margins regularly to make sure your profit margin on each product/service is delivering the cash that the business needs.
3. Keep an eye on overheads and costs
Your costs are one of the main elements in defining your profit margin – but they can also be a variable over which you have little control. If raw material prices rise or your building rent increases, your costs and overheads can soar – and profits plummet.
Take the time to regularly review your costs, and make sure that they are controlled, measured and meeting set targets. It’s very easy to continue making payments for a service or piece of equipment that you’ve always paid for: but are you really using it? Know when there’s a white elephant in your business and, if necessary, get rid of it.
4. Make changes to make profit
Bringing in more sales isn’t the only way to make more profit. By making small changes to your operations you can have a big impact on your end results.
- Source new suppliers – shop around and see if there are more cost-effective suppliers for your key materials and services.
- Reduce your terms on purchases – negotiate when you buy a new piece of equipment or software and try to agree more favourable terms on your payments.
- Make the most of tax incentives and grants – check if your business is eligible for tax incentives, such as the R&D tax credit, or government-backed grants that could provide a cash injection.
5. Use your time and people effectively
Ultimately, making a profit does come down to using your people, your resources and your time efficiently.
Make sure that people spend their time wisely in the business, focusing on priority customers and meeting their budget targets. Look at upgrading your business systems and solutions to a cloud-based system such as Xero and get all the benefits of software automation, cloud payroll and instant access to real-time numbers
Use software to free up your team’s time so their skills and energy can be put into helping generate more profit.
We help you become more profitable and productive
Moving your business over to a modern cloud system, and building a focus on profitability and efficiency into your processes, brings real benefits to your end profits.
As Saint & Co, we can help transfer you to a Xero system and train you in how to get the best from your finances. Get a better overview of your accounts, streamline your bookkeeping processes and get back time for generating profit.
Outsourcing your payroll is another a great way to free up your time. We can run your payroll and enable you to concentrate on what you’re good at: dealing with customers and bringing in new business.
If you’d like us to take up some of the financial slack, and help you become more profitable, please do get in touch. We’d love to help you create more profit.
Call your local Saint & Co office to arrange a meeting with our profit specialists.