With the economy rising, there has never been a more crucial time to take a good look at your overheads and cost of sales. Then, add into the mix the rising cost of labour, materials and shipping and how you process this information may be the difference between you having a good year or a bad year. This article will look at the 6 most common profit holes that many small businesses may have.
Pricing: Has it kept up with your costs?
It’s been a difficult year, I hear you say. Are you in your head thinking that your customers and clients won’t agree to a price increase? Well, think again – this is often the small voice of doubt in our minds. If Starbucks and Costa can afford to still charge eye-watering amounts for a slice of cake and a coffee throughout the rising economy, Then you can look at your pricing too.
Often, the biggest profit hole we see with our clients is around a poor pricing strategy. Such as:
- Are your sales team discounting too much in order to make the sale? Particularly for wholesale or bulk orders?
- Have you kept your prices the same whilst your costs have increased?
- Are your prices in line with your cost base now, rather than when you were a much smaller business. For example, if your prices have not changed since you ran your business from the spare room, then it’s time to review your pricing. (And yes, we can help you with this, if needed.)
Do you have a revolving door of employees?
Hiring new staff can be expensive with training costs, Senior management time spent hiring and training, Recruitment agency costs and more. Losing good employees can also lower team morale as newcomers settle into the team and have to be trained, possibly disrupting business. If this is something that is regularly happening within your business it may be time to look at how to increase employee retention.
Software costs: Have you had a good look to see what you’re really using?
All of those individual $15 a month per user subscriptions might not have seemed bad at the time of setting it up but down the line multiple of them can cause that number to skyrocket. Maybe it’s time to review your subscriptions and see which ones may overlap in terms of services offered and cut some out of the equation that may not be as needed as others.
Suppliers: Are they taking the proverbial?
We’ve seen this in our business too. It is where we’ve worked with a supplier for years. Both we and they have got comfortable and complacency sets in. This cosiness was hiding the fact that we were not getting the service we required or expected. Even worse, the prices we were paying were now not in line with the current market. A desire to avoid conflict was stopping us from having a ‘state of the nation type’ conversation with the supplier.
In our experience, the first place to look at is your spending with marketing suppliers. Then your telephone and internet suppliers. What are they really delivering? Do they need a shakeup? Our advice to you is, if this sounds like an issue you are having, have that conversation!
Not using automation (particularly in your financial processes)
The cloud revolution which we keep harping on about has been a game-changer for not just accountants. The digital tools out there will help your business cut out so much physical paperwork and manual entry. For example, if you are a small cafe or pub you can now get great phone apps that will allow customers to place their orders from the table. Thus, improving the efficiency of your operation and waiting staff.
Doing it yourself
How long does it take you to do stuff which should be outsourced or done by others in your business? This ‘doing it yourself’, particularly when it comes to things like bookkeeping or VAT returns, is often a false ideology. Your time is much more valuable delighting customers and clients and running your business than puzzling over whether you can or can not claim VAT on your company car or that coffee with a client.
Using the right people and suppliers to free you up to do what you’re best at is often a great way to generate more profit. It goes without saying that we are always happy to talk about whether we are a good home for your bookkeeping and other financial processes.