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By measuring your profitability it will give you an indication of how your business is performing. Profitability is the amount of money leftover in your business once all your expenses have been taken out. This figure is important to determine whether or not your business is sustainable. Cash flow in your business of course is important but it’s what you’re left with at the end which indicates how well your business is performing and if your business model is viable.
There are two important factors which impact your profitability;
Prices charged
Costs incurred
By looking at both of these figures it shows whether or not your business is making a profit. If your expenses are more than the money coming into your business then you will be making a loss.
How do I ensure my business is profitable?
Charge your worth
Are you charging your worth? Many businesses are afraid to start off as a new business inline with their competition, and more often than not under price themselves to get themselves seen. The only problem with this is you're having to work twice as hard to generate more sales in order to get the money you really need. By charging your clients a little extra not only will it generate extra cash flow into your business and increase your profit margin but it will also mean you don’t have the added pressure of generating new client business. Of course you will still want to grow your pipeline, but when there is less pressure to do so, you usually find the new clients come streaming in!
Generate more business
Invest time into your marketing strategy. The time invested is well spent in order to generate new income. If your marketing strategy is already working that’s great but if it’s not you need to review where it’s going wrong and make changes in order for it to be feasible. Generating more business doesn’t necessarily have to mean ‘new business’. Client retention is of utmost importance to the growth of your business. Developing great relationships with your loyal clients and building that trust means that they will happily invest more into you. Upsell to them, after all you have built that relationship now and they know what a great service you offer them. Just make sure the timing is right and that they are aware of all of the products and services you have to offer.
Reduce your expenses
The less money leaving your business the more profit you will make so audit your expenses and highlight the areas you are overspending in. Could the money be invested in better places in your business?
Review subscriptions to make sure that you are using them to their full potential. If not, then decide if you really need them. Software is well worth investing in if you are using it to benefit your business but many of us get ‘shiny object syndrome’. We see new software we want and we have to have it, but then we don’t have the time to find out its capabilities and therefore don’t use it. This results in paying for subscriptions that aren’t essential to your business and then they are just a waste of money.
Build relationships with your suppliers to ensure you are getting the best possible prices. Remember if shopping around though that cheaper doesn’t always mean it’s better for your business. Your reputation is at stake so make sure that any reductions you make are for the right reasons and that they won’t put your business in jeopardy.
If you need help in cutting back costs, reviewing your spending and increasing your profitability then please get in touch. We are experts at cash flow forecasting!