Profits are vital to your business as they fuel growth. They lead to sustainable cash flows and without them, a business will fail. This guide will give you a better understanding of why it is important to have healthy profits and how you can increase them without affecting the quality of your service and products.
Having sustainable profits in your business increases its value. If you have a poor profit level this will hamper your attempts to put money back into your business and keep it growing. This means less investment in new products, new plant/machinery, new technology and new staff. It will also be harder to attract finance into the business from outside sources. To begin with, you need reliable and accurate management accounts to determine your profit level.
Find out which parts of your business are bringing in good profits and which are not. Which of your customers bring in the most value to your business? You can then focus on your most profitable clients and look at how you can expand the services and products you sell to them through diversification or cross-selling. Look at your competitors and ask whether your product is fully competitive and if your service is of the highest quality in the market. Review your pricing structure and ask whether you are charging as much as you could be for your products.
You need to uncover the waste in your business and closely manage your costs. Look at making savings with the type and number of suppliers you use and whether you can buy cheaper raw materials. Look to reduce costs in these areas by 5% every year. You also need to limit and reduce overheads and your tax liabilities where possible. More efficiencies can be gained in how you use your premises - get lower rents for longer contracts, sublet unused space - and what you pay to power suppliers. But do not let your cost-cutting come at the expense of driving down the quality of your products and services.