8 Tricks for Running a Profitable Business
Many small business owners see profitability as an elusive long-term goal — something that will only happen after years of being in business.
Certainly some businesses have more upfront costs that will take longer to recoup, but all business owners can make decisions that push them toward profitability in the shortest amount of time possible.
There is a wide array of tips, tricks and savvy strategies that entrepreneurs can employ from the very beginning to assertively push their businesses toward profit-making status. From creating a solid business plan to automating processes to raising your prices, there is a lot you can do to run your business in a profit-conscious way.
Here, a range of business experts, consultants and owners weigh in with some of their best advice.
8 tricks to get your business to profitability
1. Make a business plan
One way to get to profitability as fast as possible is to plan out the route to get there. Not all business plans are created equal, though — it’s important to have a very strong and detailed one to guide you on your way. The plan should be heavily informed by market analysis and financial projections, as well as any other information you’ve gathered. This level of specificity and supporting documentation is particularly important if you are looking to attract investors.
“I do believe that if a small business has an in-depth business plan that they will reach profitability faster,” said Deborah Sweeney, CEO of business services company MyCorporation.com. “These documents are written to evaluate the feasibility of your business as objectively and critically as possible. Many are written three to five years out, giving you a detailed glimpse into your startup’s future.”
2. Prioritize your priorities
With the complexities of running a business set to overwhelm at any minute, it’s essential to know want you want or need to prioritize and then get organized enough to actually do it. Michael Roub, managing partner of strategy consulting firm Inflection 360, recommends taking time each evening to tee up the priorities for the next day.
“Most small business owners know what is a priority,” he said. “However, the daily juggling of tasks and responsibilities can make it difficult to focus on what is actually most important. With a little bit of preparation, every small business owner can greatly improve their results and overall business performance.”
3. Lower your overhead
In the digital age, with the proliferation of powerful digital business tools and the widespread availability of wireless internet, there’s no reason to take on some of the costly business infrastructure of prior eras. An entrepreneur offering business services can work from anywhere, eschewing a physical office and all the accoutrements that come with it. Even those who need a physical location can use digital tools for communication and other functions that can cut costs considerably.
“Most businesses are service businesses,” said lawyer Russell D. Knight. “All you need is your laptop and whatever tools you have. Between Starbucks, the public library and anywhere that has Wi-Fi, the world is your office.”
4. Focus on cash flow
Take cash flow management as seriously as you do the need to make sales, recommends Jennifer Dawn, owner of Jennifer Dawn Coaching and a business coach to small business owners. An obsessive focus on sales may take scrutiny away from the bottom line, which can quickly lead to cash-flow problems. Cash management is a skill that can be cultivated from the very beginning of your entrepreneurship journey.
“Get on a cash management system like Profit First from the beginning and stick to it like glue,” she said. “It will serve you well at all stages of business growth.”
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5. Know your profit margins
Knowing what profit margin you can expect in your industry is essential to knowing what changes you should make to become profitable. Cheryl Lockhart, a business coach and certified management consultant in Edmonton, Alberta, advises that there may be a de facto limit to how much profit you can make in a given business sector. If that’s the case, you’ll need to find a new strategy — different products or service lines, or significant increase in volume of sales.
“Develop a solid budget and compare against it each month so you quickly know if you’re overspending,” she said. “Remember that profitability is driven by numerous factors: sales, cost of sales, overhead, financing rates, etc. Making a small difference in each can result in huge improvements in profitability overall.”
Automation is the watchword for Vanessa Kruze, a CPA and founder and CEO of Kruze Consulting, which serves funded startups and was listed as one of Inc.’s 5,000 fastest-growing companies. She finds it worthwhile to spend a little money upfront to buy or subscribe to software that will effectively automate any task that you or your staff are doing repeatedly. This not only saves their time, but prevents errors and relieves aggravation and boredom.
“Free your time to grow your revenue base and do more with the same headcount,” she said. “Since headcount is the primary cost at most small companies, if you can keep that flat and grow revenue, the profits will follow.”
7. Hire contractors
A common business mistake is hiring salaried employees when hourly contractors will do, said Violette de Ayala, founder and CEO of FemCity, a business community for women. Sticking with contractors, at least in the beginning, is a way for your business to “run lean.” With the ranks of freelancers growing all the time, you can easily find talented people with great experience who will work on an hourly or retainer basis. You can find good contractors through networking or freelancing job boards.
“Working with hourly or small retainer contractors allows you to scale the business as you grow,” she said. “It helps you to keep costs down and as you gain more profitability in the company, you can use those funds to invest in more hires or added hours.”
8. Raise your prices
One obvious way of boosting profitability is demanding more money from your customers or clients. This can seem a daunting prospect to those just establishing themselves who fear customers turning away. But if you are genuinely understanding — and thus solving — your client’s real business problems, they will likely stick with you, said Reuben Swartz, founder of Mimiran, a maker of sales acceleration software for service businesses. If you feel your customers aren’t sufficiently loyal, reach out to them to learn how you could tweak your product to make it more effective in helping them solve their business issues.
“One of the best things professional services companies can do is raise prices,” he said. “If your business has 20 percent margins, a 10 percent price increase will increase your profit by 50 percent.”
The bottom line
There’s no magic bullet to getting your business to profitability — it starts with a solid business plan and, of course, requires plenty of hard work. But as you make decisions regarding how you plan to grow your company, keep a close eye on how those choices affect your potential for reaching profitability quickly. These tips are a good place to start in planning out your best strategy.