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Understand your financial statements.

Many business owners struggle to understand their financial statements and how what they are doing is impacting profitability. I once had a business owner tell me they were getting more clients and increasing revenue. However, the cost of sales for each of those new clients was significant, which will cause that business owner to lose money. There are great classes provided by local universities through the extension courses to help you understand financial statements and how they work. I teach a class for the UCI extension program you should consider. https://ce.uci.edu

Increase Revenues

Once you understand financials, look for ways to increase your revenue. Do so knowing what the gross profit will be for every additional dollar you bring in. Some ways to do this is to improve your marketing. Some of this is common sense. Use the right channels to reach your clients and know what those are. I share a basic marketing plan format with my clients, which helps to clarify what they are doing to reach customers and what they are spending compared to potential revenue results. I once had an employee who wanted to spend $10,000 for and event that reached 20 people, and the net they could each bring to the bottom line was approximately $500 each. It didn’t make sense. Not everyone understands the cost and return for every marketing dollar.

Marketing

There are so many important factors to consider when marketing. Are you using the right outreach for your customers? Are you providing the right product or service? Can you look at the demographics and consider reaching more potential customers? Creating and following a marketing plan will put discipline around your marketing and will help with spending your marketing dollars the right way.

Reduce Costs

For every revenue dollar you bring in, only the gross profit goes to the bottom line. In other words, the revenue less the cost of sales will improve your profitability. However, if you save on costs, the effect to the net profit will be a dollar-for-dollar improvement. How do you reduce costs? Watch the efficiency of the process for your product or service. Can you move things around, to enable your staff to operate with less movement? Can you reduce waste? Can you find less expensive suppliers without giving up quality? Ask your staff for ideas. You might be surprised at the results.

Improve Cash Flow

Cash flow is a little different from profitability, however, just as, if not more important. Businesses can be profitable, but not manage cash well, then go out of business because they run out of money. A couple of key points is to monitor your accounts receivable. Make phone calls to your customers who are past 30-45 days. There are many nice ways to ask when the check is going out. And, the squeaky wheel usually gets paid first. Another thing that creates cash flow casualties is inventory. Too little, and you can’t service your customers. However, too much, is like cash sitting on your shelves. Can you narrow your offerings to reduce the use of cash for inventory? Can you get an inventory supplier that requires less time from the order to receipt of inventory so storing inventory is not as necessary?

Try one or all.

Get help with a consultant. If you hire the right person, they can help you identify the most effective ways to improve your profitability. Call Marla Noel, OC Growth advisors. 714-305-9500.