Two More Ways to Increasing Profits in the New Year!
As the year is coming to an end, many companies are thinking about and planning ways to increase profits in the coming year. If growing your profits is important to you, then this article was written for you!
In this article, I will ask you a series of powerful questions. These questions are centered on the most basic (and most significant) profit-drivers for a business. Specifically, the questions will address:
- Reducing Costs
- Increasing Efficiencies
In answering these questions, it is likely you will get several ideas on how you can grow your profitability in coming year. Remember, growing profits does not necessarily mean that you have to work harder. Sometimes, we just need to work smarter.
Here are the powerful questions in each of those areas for you to consider and answer truthfully:
- Reducing Costs
- The cost of labor is usually one of the largest expenses in many businesses. Having a team of superstars that connect with the business mission, vision, and values are imperative and will help save on morale issues and clarity of direction. Having an interviewing, hiring, and on-boarding process along with on-going training is a big advantage over many businesses. Do you have the right people in the right seats?
- A business that is overstaffed can be experiencing excessive labor costs that reduce the profitability of the business. Having effective systems and processes in place will help your business to incur fewer labor costs. Do you have people on your team that has created their own systems and processes that are not following your standard operating procedures? Sometimes, companies have people on their teams who are not able to fulfill their entire job duties, so they hire additional people to shore up those weaknesses. This results in a bloated payroll. Are you currently employing extra people to make up for the weaknesses of people on your team?
- What would happen to your profitability if you were to invite a poor-performing employee to find another line of work where he or she may be more successful? Having a process for determining what the strengths and weaknesses of your team members are can help you to determine who may be the best person for a particular project or initiative.
- A system for tracking the pricing of products or services that you purchase on a regular basis from your suppliers can help you to determine if you are you being blindly loyal to any suppliers that you have used for years. This happens more than you think.
- What is the least profitable product or service your company offers? Is there anything you can do about that? (Conversely, “What is the most profitable product or service your company offers? Is there any way you can sell more of it?) Many businesses will continue to provide a product or service that is no longer cost effective to provide. We provide it because we always have. How many customers or clients are actually utilizing the product or service?
- Where do you have expensive waste? What systems can you put in place to greatly reduce or eliminate that waste? Waste can be happening in many different areas of a business. It could be printing reports that no one uses or were created for someone who is no longer with the business. It could be excessive scrap in a manufacturing process. It could be redundant systems where information is entered into multiple systems that do not communicate with each other.
- Look at every expense line on your income (P&L) statement, then ask yourself, “How can we reduce these expenses or are they necessary?” What expenses do not result in a good return on your investment? Many times a business does not keep track of what expenses are repetitive and could be eliminated, like a lease or monthly fee for an obsolete piece of equipment or a retainer for services that are no longer needed. Can you get a price reduction based on a volume discount?
- Do you have any unprofitable customers or clients? What should you do about that? A business owner I have found at times that there have been customers or clients that require more attention than others. They ask for a better price or require a lot of attention or seem to always have issues that they want an immediate response to, yet they are slow to pay the bill. What are customers or clients consistently late on their payments?
- What services are you currently outsourcing that may make sense to bring in-house? Do you outsource projects that you don’t want to do but someone else in the business could do? Many times a project is outsourced that someone who was hired after the outsourcing was done could do.
- What services are you currently doing in-house that may make sense to outsource? Outsourcing is a good idea for specialized projects that may be short term or you don’t have the expertise to perform. The outsource person or business may be able to complete the project much more cost effectively.
- How is your employee retention? How much is employee turnover costing you? What can you do about that? One area that I see many businesses lack is in the area of continuing education. We hire a person for a particular position and assume they know what they need to do. They may have learned a skill from a previous employment or schooling, but your business may have some additional tasks that accompany the skill. For instance, you may have additional functions that you expect a person that is in HR to be able to handle. Maybe they are expected to verify employees hours, track benefits, create job descriptions, interview applicants, etc.
- Is there a less-expensive way for you to finance your debt? I have found in working with businesses that they secure a credit line to fund their labor expense while they are waiting for customers or clients to pay their invoice. What are you were to collect payments from customers or clients on a regular basis, not just waiting for them to pay? Can you reduce your average days to pay from 60–90 days to 30–45 days?
- Are there any legal strategies you can put in place to reduce your tax liabilities? (Personal Note: You may want to have an accountant who is not your primary accountant take a look at what you’ve been doing. The second set of eyes may pick up on something your primary accountant has overlooked.)
2. Increasing Efficiencies
- Do you have recurring errors in your business? If so, how can you improve your training or your systems and processes to make sure those costly mistakes get eliminated? What is working, not working, confusing, or needs to be fixed in your business? You hear about an issue in your business and you just hope it doesn’t happen again. Why not take preventative measures to assure it will not happen again.
- Can technology updates (or new technology) help increase efficiencies? Many businesses have outdated equipment or systems that have been in use for years. Is there a better way?
- How can you streamline your company operations (in every department) to reduce wasted time and money? Every business has room for improvement in this area. We tend to not change something if it is working. Why change it? Change for sake of change is not what I am talking about. Change is needed to keep ahead of your competition and keep your team as effective as possible.
- How can you improve your planning in order to maximize your efficiencies? Having a clear plan that is consistent with your mission, vision, and values are imperative. How does your team know with clarity that they are all on the same page? Have a plan with clear objectives, strategies, and actions you will take. Each objective is measurable and has an end date. Each action to be taken has a tracking for what has happened and what the percentage of completion is. What are the assumptions used when the action was considered or implemented?
And now, the most powerful questions of all:
What are the profit-killers in your business that you know you should fix, but haven’t had the time to address? What are you going to do about it NOW?!
This article was not intended to be comprehensive. It was just intended to get you thinking and spark a few ideas to help you get going in making 2017 your company’s most profitable year so far.