How To Improve Small Business Profitability

How to improve small business profitability

It is absolutely essential for any business to be making a profit. It’s not always simple, especially in this current climate. Using my experiences of self employment and recent issues that have arisen with clients and contacts, I have identified some key ways that a small business can improves its profitability.

Review your charge out rates and pricing structure.

Many small businesses, and in particular start-ups, are charging lower fees to try and win a client. Be confident with your fees and be prepared to be refused by clients. If the prospective customer doesn’t see the value in using you it is their loss. Fee ‘negotiation’ is a fine art and there are some great ways in which you can create a win-win situation.

Identify the correct target market.

Whilst it is important to have a clearly defined ‘ideal customer’ don’t dismiss a potential lead. I have come across several instances of people who want to attract larger businesses and therefore miss out on a sale to a smaller business. This may be a smaller scale (be careful not to mis-judge your price per point 1) but it pays the bills. It’s better to have one client paying a small fee than none paying zero!

Ensure that you are monitoring new client sources and marketing strategies.

It is really important to identify what works best for your business. Always ask for the source of a referral or lead, even if you don’t win the business. Keep a track of your marketing by working out the rate of return for each project you undertake. Once you know what works best you can concentrate your efforts on that strategy.

Cost reviews are vital.

A regular review of costs should routinely be undertaken by any business. This means you need to keep on top of your bookkeeping and, ideally measure it against budgets. Be choosy when selecting new suppliers. Keep an eye on the potential savings that can be made by switching suppliers; however, don’t necessarily switch based purely on price. A good service may be worth paying a few extra pounds.

Remember, cash is king.

Cash is actually more important than profitability! Ensure that your sales invoices are paid promptly. You may want to reduce credit terms or consider getting money up front. Don’t forget you have bills to pay too. Try to get good credit terms with your suppliers! Always ensure you keep money separately saved to cover future liabilities for tax and VAT.

Written by Phil Hendy, principal of PAH Accounting, a firm of Chartered Certified Accountants based in Devizes Wiltshire. For more advice, resources and hints & tips check out the PAH Accounting website, or contact Phil Hendy direct on 01380 620031.

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