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The life you want: How to increase small business profits in 2021

28th March 2021

Only 40% of small businesses are profitable. That’s a lot of people who aren’t able to achieve the life they want.

Make sure you’re not one of them by using the following methods to increase your small business profits in 2021.

Each one might take some work. But it’s essential that you focus your efforts on the actions that have real impact.

How to increase small business profits and achieve the life you want:

1. Forget about your turnover

To increase your small business profits you need to make the right decisions. You can only do that with the right information.

Ask your accountant and they’ll tell you that turnover doesn’t represent business success. 30% of SMEs are actually losing money, but their top line revenue could still look healthy.

Profit tells you if your business is working and growing, and the bottom line reveals what improvements can be made or what elements (from subscriptions to staffing) can be made more cost-effective.

Why forgetting about turnover will increase your profits

With profit as your primary measure of success, you can see clearly how well the different cogs of your business are working together.

If you intend to sell your business in the future then profit will inform what someone should pay. Investors use profit to decide whether to buy-in to your vision. When you want to grow, lenders use it to judge risk.

That’s because profit demonstrates the health of your business. To improve that health, you need to understand your profit and the factors that drive it.

What to do about it now

  • Request a profit report for your previous three years with an overview of every expense and cost
  • Compare the growth you’ve experienced in revenue with growth in your profits
  • A healthy profit margin is between 15 and 20% of total revenue – if you’re not achieving this, swift action is needed

2. Understand what really matters

It’s important to focus on profit, but money itself isn’t the reason you run your business. To achieve the life you want you need to define what that really is.

Why are you doing this and not just selling ice cream? What’s the end goal for you – is it selling your business, retiring early or building an empire?

It’s your profit that will, inevitably, make this ultimate purpose possible. But without a clearly defined purpose you’ll be in danger of joining another unfortunate group – the 33% of small business owners who lack the motivation they had when the business was new.

Why understanding what matters will increase your profits

What matters to each of us is different. But once you have staff and a business that expands beyond your individual control, you must invest your time and energy effectively.

So just like turnover and profit, understanding what is important and what isn’t will help progress towards meaningful goals – this will bring out the best in you and your people.

Nobody wants to join a team that only works out of obligation to a pay packet. But people with passion and vision are prized, and everyone wants to work alongside their positivity.

What to do about it now

  • Define your ideal future in 5, 10 and 20 years time and what you need to do to achieve this
  • State what financial and business performance you’d need to progress these goals (savings, profits, etc)
  • Write a scheduled plan of how to get there to keep you on track and help with demonstrating progress

3. Identify what affects your profit 

So you understand your purpose and you understand your business. Now you need to identify the opportunities that can make the biggest impact.

Your business is made of many moving parts, especially once you have multiple teams and services, but there are hidden points of friction that can be hard to grasp but valuable to know.

Fortunately, when you have the clear criteria of profit and purpose it becomes far easier to measure how effective each task, process or achievement really is.

Why identifying what affects your profits will increase them

How much does your marketing team cost you? What’s your cost per client acquisition? How much additional staff resource does a bad client cost?

These questions and more can increase your small business profits by uncovering the information than enables you to lead more clearly and make better business decisions.

In addition, simpler drains on your margin like rent commitments or energy bills are more straightforward to renegotiate when you have a clear focus on what really matters.

What to do about it now

  • Detail all expenses from staff to infrastructure and show how each one supports profit growth
  • Survey your staff and records to define the resources required to service an average client
  • Examine which of your products or services is most profitable and explore ways to increase this activity

4. Stop trying to be cheaper or faster

When you try to be the quickest or the least expensive option in your industry, you have no chance of becoming the best. Sometimes it’s best to not compete at all.

When you act like your work is easily replaceable your business looks like a commodity – something that people will choose on price and drop at a moment’s notice.

In the end, there will always be a business that can work faster or offer a lower cost than you. You need to build a reputation that doesn’t make you or your people vulnerable.

Why being slower and more expensive will increase your profits

Most businesses promise low prices and high speed. They never get to enjoy stability, because to their clients they’re just a transaction to be made and forgotten.

Consideration for your clients and their real needs is expensive (and slow) but that’s what you need in order to stand out. Put up prices to put off the clients who don’t value this attention.

It may sound counterintuitive, but this approach builds relationships with clients that go beyond transactions, and strong connections support a more stable and profitable future. 

What to do about it now

  • Demonstrate confidence in your value by removing price lists and stopping all discounts
  • Set your prices at a level that achieve the profit you need to achieve your ambitions 
  • Provide better value by improving services or products in ways that really matter to your best clients

5. Learn to say ‘No’

Not all work is created equally. There are clients who hassle your receptionists, projects that staff spend hours reworking and businesses you’d never allow to contact you directly.

Maybe once it felt like you had to say ‘Yes’ to everything, just to get momentum. But now you’ve built an established business it’s time to learn to say ‘No’, and prioritise good work over bad.

Why saying ‘No’ will increase your profits

The time you and your people spend on a client has a real cost – if a project requires more time than you expected then you’re going to make less profit. 

But good clients are predictable, which makes your quotes more accurate. Good clients pay on time, so your staff don’t waste energy chasing them. Good clients are more profitable.

The impact of good clients goes deeper than that. When you work with good people you attract good people and, crucially, you’ve a better chance of hanging on to your best people.

What to do about it now

  • Identify your best clients and what they shared (size, attitude, requirements) that made this the case
  • Use this info to improve your contracts and working arrangements so clients know what you expect from them
  • Use your criteria to weed out bad clients and spot costly problems before you agree to future work

6. Understand why people buy 

Some people will only ever consider price when choosing to buy. Ignore them. Instead, it’s time to provide a more valuable reason that someone should choose to work with you.

People pay for an enjoyable customer experience. People pay more for a closer relationship. People pay for a dedicated understanding of their problem, not a one size fits all solution.

By helping people to understand their needs, their ideal future and show them how to get there you’ll be providing an irresistible reason for them to choose you.

Why understanding why people buy will increase your profits

When you help people see what success looks like, and you show them how to get there, they will inevitably include you in that picture.

By focusing on what a client will need in the future, you create a stronger working relationship that will last longer and be more profitable than a fly-by-night transaction.

Few businesses ever prioritise the needs of their clients over their own. When you do, you create a reputation for quality service that is almost impossible to compete with.

What to do about it now

  • Identify how your service or product fits into the long term activity of your ideal client
  • Explore how to help clients make the most effective use of your product or service 
  • Use marketing that focuses on how you can deliver these larger, more impactful benefits

7. Make your people happier at work 

From the top of a business it can be difficult to appreciate the challenges and frustrations that might be affecting people on the front line.

Outdated systems or processes cause delays that make work more difficult. Irrelevant requirements create bottlenecks or, worse, demoralise your staff. What worked five years ago with three people won’t necessarily work now.

It’s not an exciting part of running a growing business. But examining and overhauling your structure is one of the most essential tasks a business leader can perform.

Why making people happier will increase your profits

Happier people are more productive. Happier people are more likely to work with positivity, passion and dedication. Everyone likes being part of a happy team.

Happy people stay, and staff turnover is a huge cost. For your growing business it could be the difference between a successful year or a whole new wealth of problems.

82% of employees say productivity suffers due to poor information management, but only 4% of businesses measure the effectiveness of their business structure. Don’t be like the rest.

What to do about it now

  • Dedicate regular time to check in with your staff or at least your leadership team
  • People love to be involved in improving their roles, so ask them relevant questions
  • Be sure to respond or take action with the constructive feedback you receive because silence ruins relationships

8. Invest your money, not your time 

SMEs account for 99.9% of the UK business population, which means that the country is jam packed with proven expert knowledge.

As your business grows you meet new challenges. Onboarding new employees. Expanding into new markets. Paying for advertising. Training and development requirements.

For each challenge there’s a business that can help. Your job as a leader is to understand when to invest in your own people, and when to invest in outside expertise. 

Why investing money, not time, will increase your profits

As an established business you already have a network that generates client interest, and as a business owner your goal is to ensure every client gets the same successful outcome.

This is what your time is for – maintaining and improving the service you provide. It’s not for learning SEO techniques, mastering CRM platforms or writing pages of website content.

Your time has a cost, even to yourself. That knowledge will prove that paying an expert to do a high quality job will net greater returns than investing your energy in a brand new skill.

What to do about it now

  • Use your strategy of profit and purpose to identify the tasks that would bring the biggest benefits (e.g. web traffic, client management)
  • Survey the existing skills of you and your team and spot which of these important tasks can be performed in house
  • For everything else, explore both the cost and the expected return of using a high quality outsourced expert

How can we help increase your small business profits?

At RDG Accounting, we are experts in a comprehensive range of services and support to businesses – whether you’re a start-up, sole trader or a limited company.

In today’s complex financial world, we understand that a reliable, professional chartered certified accountant is essential to managing your business.

Our services enable small businesses to survive and prosper. 

We can help with:

  • Company accounts
  • Business Start-up
  • Bookkeeping services
  • Tax returns
  • VAT
  • Sole trader accounts
  • Payroll
  • Cashflow planning
  • Management accounts

If you run a small business and would like to benefit from some one-to-one advice on achieving the life you want, please book a call.

Alternatively, if you’d like to get started sooner you can call us on 0333 200 0714.

Book a call

References: 
www.process.st
www.smallbiztrends.com
www.smallbizgenius.net
www.fundera.com
www.statista.com
www.forbes.com 

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