Last month we looked at turnover and profit and explained the difference between the two. If you have a good turnover but poor profits, your business isn’t running as well as it might.
If your business is more profitable it is more likely it can cope better if you experience any downturns or unexpected events.
Having more profits means your business also has the cash to invest in new equipment, products or staff.
Being an accountant in Newcastle means we understand that market conditions can often affect this region more than other areas of the UK. But higher profits will help you weather storms better.
If you want to increase your business’s profits, here some ways that can help:
Cut what you spend
How can I reduce business expenditure? The first thing you need to look at is your outgoings. It sounds easy, but without having a proper review you may be spending something that’s unnecessary
For example, could any of your suppliers reduce their prices? Are you paying for services that you’re not using?
If you are a member of a professional body but never utilise their service, then it’s wasted cash. Cutting non-essential spending can increase your profits.
Are you efficient?
Are you spending time doing something where there are quicker processes? This could be affecting your profits.
For example, can an online bookkeeping app save time? Review your finances regularly too. If your mobile phone contract is up for renewal, don’t ignore it. Use the opportunity to ensure you are getting the best deal.
Again, it is a simple process but one that could be costing you money and impacting your profitability.
Prices mean profits
When was the last time you reviewed your prices? If you haven’t changed them for years you are likely to be underselling your goods and services.
It is acceptable to ask a client or customer for more if your prices haven’t kept up with increasing costs. Think about the last time you went to the supermarket to find a product price had increased!
You could try introducing small increases over time rather than a big hike to ensure it isn’t a big shock to your regular clients. And be clear about why you’re raising prices!
If inflation means production costs or prices in the supply chain have risen, let your customer or client know. It helps them understand why you have increased prices.
Up-sell or cross-sell
Your current customers are also your best customers! If someone is enjoying using your products or services, the chances are they will continue to use them.
If you offer a more premium product that offers a higher margin, then why not encourage them to choose that instead. That is up-selling!
If you offer a service that complements what you do (such as a photographer offering a framing service) why not introduce your customer to it?
If it complements the original service you could sell more and that could mean more profits.
Increase customers
Another straight-forward suggestion but one that will increase your profits!
If you have more customers you will increase your turnover. And if you have priced everything properly and you’re not absorbing the cost of new customers, your profits will increase.
Work out any increases in salary should you need to employ a new salesperson.
Also, consider the cost of bonus structures to encourage your sales team to sell more. That way, they will want to increase their sales and, in turn, it will show in your profit and loss account.
Look at what you offer and add new lines or services too. The cost of adding them may not be much more but your profits can increase.
Greggs decided to appeal to a new market when it introduced the vegan sausage roll. As a result, they increased customers and profits by appealing to a different market.
There are many ways to increase profits in your business and no list is exhaustive as each company is different.
If you would like more information, then contact us at Concept Accountancy.