In our Business Essentials Series, we’ve discussed the various ways your business can improve on various financial metrics, and methods to focus business efforts in order to achieve financial success. The third article in our Business Essentials Series will explore the five ways to improve your bottom line.
Methods in refining your operations, and realising internal efficiencies will not only increase your profit, but will set the foundation for sustainable profitability as you increase sales. It is important to note, however, that focusing on sales first, or putting too much focus on sales alone may not actually deliver more profit if your business is not as operationally efficient as it could be. It is important to remember your Gross Profit (GP) Margin, and manage your capital expenditures efficiently.
So, what can you do? Naturally, each business requires strategies individually tailored to their own situation, but there are some universal tactics that can help you identify opportunities for growth, and maximise efficiency. With a few simple adjustments, you might be pleasantly surprised at the results - and the figures in your financials.
1. Optimise your systems and processes
Your systems and processes form the foundation of your business. The more effective the framework, the greater the potential for success. For that reason, assess your systems and processes periodically to ensure they're supporting your company. Here’s what you should be looking for.
Do you still manually key financial transactions such as accounts payable and invoices? Does it take weeks after the end of the month for you to get a picture of how the month’s results look? Is there financial paperwork everywhere?
Adopting a cloud-based accounting system will help reduce manual errors, streamline tasks and cut costs utilising:
- Pre-coded repeat transactions
- Sending invoices electronically for fast payment and minimal debtor issues
- Task automation, like debtor follow up and mobile timesheet entry and integration, for seamless connection with your accountant for financial discussions and strategic advice.
Are your staff still filling in paper timesheets? Is inventory management clunky and difficult, and challenging to reconcile in the financial systems? Do you still struggle with point of sale tils being out of balance at the end of the day?
Operational systems, such as inventory management, workforce management, point of sale, and e-commerce, work best when the user experience is seamless. Clunky systems breed poor compliance with process, creating inaccurate data and re-work throughout the business.
By making systems easy for staff to use, and processes simple to understand and follow, you will not only achieve optimal efficiency (and influence profit), you will also ensure that your data is credible for all levels of decision making.
When making a decision to choose a new operational system, it’s important to determine that it integrates with your existing financial system to reduce data anomalies and enable real time, accurate information.
2. Focus on your customers
In our digital world. people have more information and options at their fingertips than ever before, which is why it's never been so important to have a customer-centric focus. You may already be recording your customers transactional data, which is a great first step in determining what value customers find in your business.
To dive deeper into their thoughts and opinions, ask them! A survey, focus-group or phone call with your customers is a great way to gain invaluable feedback and to find new ways to satisfy their needs as consumers.
With your customers' needs and preferences in mind, look for ways to grow your operations. For instance, ask yourself:
- Could we diversify our products or services and develop a new market?
- Is there potential to increase sales through rewards programs, loyalty cards or spotters fees?
- Are we rewarding referrers for conversions?
- Is our website easy to find and navigate? Is it updated and relevant?
If you're not sure where to start, consider conducting a SWOT analysis (evaluating your strengths, weakness, opportunities and threats) to identify opportunities for growth and improvement.
3. Nurture your financial health
Once you understand where your operational and consumer gaps are, a financial health check is the next step to help you decrease your costs, increase profits and stay on track into the future. First, make sure your pricing is both competitive and profitable. You can test this through some KPIs, such as the gross profit as a percentage of the selling price. If you need to increase your margins, consider:
- Developing by-products using excess material
- Evaluating whether machines or subcontractors could reduce labour costs
- Lowering freight costs
- Reducing waste by stocking strategically
- Utilising automation wherever possible and
- Raising prices to a level where you remain competitive in the market.
To keep your finances in check, set an annual budget. Using an accounting system, you can assess monthly budgets against actuals. That way, you'll be able to make changes as necessary and have a better handle on your cash flow.
4. Scrutinise your overheads
If you have been busy trying to increase sales, it's easy to forget about overhead expenses. However, minimising your running costs can have a significant impact on your bottom line. Review your expenditures and shop around for better rates (eg. for insurance, phone accounts, electricity and banking). Another example is to reduce property expenses by talking to your landlord about rent or evaluating whether you need as much space as you have.
Finally, check the return on investment (ROI) of your marketing activities, honing strategies that generate the most sales and conversions.
For a more in-depth overview of how to reduce your overhead costs and free up your cashflow read our article on Improving profits and cashflow.
5. Invest in your people
Your talent is one of your biggest assets, so nurture it! Look after your employees and invest in their professional development. The following steps can improve performance, reduce absenteeism and increate retention:
- Introduce a health and well-being program
- Engage and empower your staff, delegating responsibilities and
- Reward based on merit, value and results, incentivising sales or other targets.
These five strategies will help improve your bottom line. But keep in mind - there is no magic formula. Each organisation is different and requires an action plan tailored to its unique characteristics and objectives. If you'd like to discuss how you can apply the strategies in this article to your business, contact a BDODrive Adviser today.