Growing a small business takes a lot of hard work, sweat and sleepless nights. Most startup founders ponder on how to increase the profit their start-up makes month on month .
Profit is what dictates the health of the company. Profit offers significant insight into any business, more so for a start-up. The success of small businesses depends on their capability to earn surplus gains. Profit, in simple terms, is the company’s total revenue minus the total expenses. Profit is the scoreboard of the company.
For the startup to remain in the business, it should keep ticking. Having a decent turnout helps the startup to fulfill its desire to expand its operations. Even banks, suppliers, VCs and other lenders are more likely to provide finances to the company if it demonstrates good performance that is -profits.
On a lookout for success mantra for increasing your start-up profits? Here are some tips to follow to grow your business and venture into a shining future:
PAY ATTENTION TO THE CASH FLOW
You may have a great start-up idea and a rock-star team, but if you do not manage your cash flows, you are putting your business in a very dangerous situation. No matter how small your company is, you need to have all your payment timelines outlined accurately along with detailed inflow projections. The projections help you forecast periods when your business may have low cash inflows and come up with measures to keep the business running.
You can hire a financial expert to develop cash flow projections that will help you to plan your working capital better. This may help you further invest in the expansion of your company and hence improve your profits.
DEVOTE MORE TIME TO MARKETING AND PROMOTIONS
An obvious way to increase profits is by increasing your company’s sales and that can be achieved by boosting the company’s marketing. Careful product planning, test-marketing and monitoring your results can help maximize your sales. Conduct marketplace research to identify with your target audience. Run ads and promotions (with a limited number) and check for results before spending the entire marketing budget. Pay special attention to product pricing. Charging higher or lower than the competitors’ product can work both ways for the sales. Expand your distribution channel. You can opt for a combination of direct selling, online selling, distributors/retailers and wholesalers. Leverage a social media platforms for connecting better with your clients. Increase your visibility on social networking sites. Looking for creative ways to lower your cost of acquiring new customers is an important number for you.
LOOK FOR LEAD GENERATION AND FOLLOW UP ON EVERY SALE
Boost your business by increasing qualified leads. Many times marketing budgets are spent on people who do not buy, nor are influence sales. Create strategies to attract interested prospects to your business. Improving your ability to convert interested prospects into paying customers is the key to a healthy bottom line. Look at ways (like training) to increase the individual sales each member of your team makes. Another obvious way to increase profits is to increase the profit margin on each sale. Continually seek ways to either raise the price or reduce the cost without changing the quality of your product. You can think of ways to increase your customer referrals from your existing satisfied customers. Developing one or more proven referral systems can have an inordinate impact on your sales.
FORECASTING AND SETTING REALISTIC PROJECTIONS
When you are just starting, making financial projections may seem overwhelming. Accurate financial forecasts can help you to develop operations and recruitment plans to make your business a success. Remind yourself often that expenses are real and will escalate if you do not keep a proper check on them. Make realistic projections of the expenses that your company will incur. Forecasting revenues should be done conservatively. Be motivated but avoid making too ambitious revenue generation projections. You may want to have two sets of revenue projections- one conservative and one aggressive.
DON’T DIVERSIFY TOO EARLY
There have been cases where the entrepreneurs, after achieving initial success, have diversified their business into too many new things. Taking up a whole new set of challenges may sometimes prove detrimental to the main bread and butter business. Too many things on your plate can dilute your attention and hence focus. Instead, focus on your main business and grow it to its full potential, before diversifying. Diversifying is not wrong but doing it too early may tie up your funds and increase your sitting inventory which inversely affect profits.
Significant expenses are incurred on large equipment purchases, cars, inventory, marketing materials, business cards before the actual revenue starts coming in. This creates a cash flow blockage. By making consistently intelligent decisions with your money, you could increase your profits significantly. Consider renting the fixed and large equipment instead of buying. This will help to avoid maintenance and depreciation costs and you may save from overpaying for a piece of equipment that is needed for a specific period only. Similarly, renting office space or utilizing the co-working offices is easier on the company’s reserves when you are starting. Sometimes, it may be cost-effective to hire part-time employees or outsourcing routine tasks rather than having full-time employees. Focus on every single cost, question it and make sure it’s an investment that will help your business go forward.
Outsourcing certain activities like finance and compliance to experts can save you lot of money and time. It also ensures that you have an expert opinion in the most critical area of business – finance!
NEGOTIATE WITH SUPPLIERS AND BE VIGILANT IN ACCOUNT COLLECTION FROM BUYERS
Negotiating with suppliers doesn’t always mean getting goods at the cheapest rates. You could negotiate on the delivery period, payment terms, their raw materials pricing and their quality of the goods. Negotiate with vendors to get bulk discounts. You may want to have a contract with fixed prices of goods for a specified period, for better projecting your product costs. Notify your vendors of any price increase will force them to look out for competitive bids. Ensure that both parties are satisfied with what is being negotiated.
Exercise due diligence in collecting your accounts receivable from your buyers. Your customers may delay your payments, but how quickly you collect it can make a world of difference.