How To Make Your Business Profitable?
Businesses large and small have the same goal: reliable profits. Those just starting out have a few extra considerations as they build the foundation required to grow their business sustainably.
- UNDERSTAND FINANCIALS
Before you can answer that question, you need to understand what it really means to make a profit. The money you bring into your company is considered revenue – and you don’t get to put all of that in the bank. Once you pay for costs including payroll, taxes, supplies and other expenses, what’s leftover is your profit margin. This is the real number that will determine if you stay in business, experience explosive growth or have to close your doors.
You also need a basic knowledge of financial terms and the ability to read financial statements. You wouldn’t fly a plane without knowing how to read the gauges – and the same applies to business. You can’t tell if you’re winning or losing if you don’t understand the controls. Being able to read a balance sheet, income statement and cash flow statement mean you’ll be able to participate fully in conversations about how to make a profit.
- CREATE A BUSINESS MAP
You won’t be able to get where you’re going if you don’t have a map to get there. Every successful business starts with a plan – or, even better, a business map. A business map is more than a way to get from point A to point B. It incorporates different scenarios so that you’re ready for anything, then connects it all back to your overarching company vision.
Your business map will include a plan for how to make a profit. What can you do today, this week or this month to start improving your quality of profit ratio? Working with a business coach can also be an invaluable tool in this stage as they’ve helped countless others create a plan that is sustainable and scalable.
- SET REALISTIC GOALS
With any new venture, it’s easy to start thinking about the end goal. Today, you’re opening your business; tomorrow, you want to make £10 million. If you think this way – in terms of creating a profitable business through massive growth from the get-go – you’ll miss out on opportunities along the way and quickly become overwhelmed.
Instead, think in terms of incremental growth. Set SMIET goals – Specific, Measurable, Invigorating & Energetic and Time-Based – and focus on improving your processes and systems and steadily increasing profits over time. Everything in life that’s worthwhile takes work.
Don’t be distracted by “quick fixes” or get caught up in a competitive race. Focus on long-term growth and what’s right for your business.
Profitability
Profitability refers to the amount you, the business owner, retain after you’ve deducted your expenses. While cash flow- the amount of money flowing through a business is important, ultimately, profitability is the best measure for the long-term viability of the company as well as long-term satisfaction of the owner(s).
Profitability is impacted by two main factors: prices charged and costs incurred. When a company can provide services or goods for less than they charge, they are profitable. When it costs more (in time, money, resources) to provide the service or good than they have charged, they are losing money- i.e. are not profitable.
This seems to easy to measure in fixed goods, but more difficult to measure when we trade assets like our expertise, intelligence, creativity, and brilliance. When we are employed within the knowledge economy, how can we measure our own personal ratio of costs/expenses to profits/income?
One way to do it, of course, is through the concept of an hourly rate. How much do we charge per hour, and do we feel that is a fair return on our investment of time, energy, brainpower?
Yet, for many of us creative entrepreneurs, the work we most love to do is exactly that which we’d do for free- because we love it so much. So how do you keep an eye on profit when you are also doing work you love?
There are three ways to increase the profitability of any business:
1) Increase prices.
2) Sell more of your services or goods.
3) Reduce your expenses.
Increasing your prices can be accomplished by raising the dollar value of your time, reducing the time you spend on each task or increasing the dollar value of each sale. You, might, for instance, move your rate from £100 to £200 per hour. Or you might move to 45-minute sessions instead of 60, keeping the price the same. Or you might sell your hours in a bundle or package such that you collect more money per sale. These are all ways to increase your profitability.
Selling more services or goods can be accomplished by finding more good clients or customers at a low cost, or by selling more to your existing clients so that you don’t have the costs associated with marketing or client acquisition. It costs about 60% less to retain a client than it costs to acquire a new one, so it makes sense to retain your clients for as long as you both provide value to each other. How can you sell more of your goods and services to your existing clients and keep providing value longer?
Whatever you do, always make sure you know your numbers.