By Patricia Sigmon, adapted from her new book “Six Steps to Creating Profit“
How often have you spent an entire business week working to “make payroll” without a single moment’s thought about your bottom line? You’re not alone. With credit crunch and cash flow fears looming, it’s not surprising that beefing up your net profit doesn’t often make your top ten to-do list.
Nearly two-thirds (64%) of small businesses either didn’t make a profit last year or failed to increase their profit, according to the year-end report from the National Small Business Association (www.nsba.biz). It doesn’t have to be that way! There are simple, creative steps any business can take to improve their bottom line — whether you’re a solopreneur or own a small business with a few employees.
Step 1 – Change the rules of operation.
To compete in today’s marketplace, you’ll need to generate more sales while reducing expenses and tweaking costly administrative processes. To increase sales, try cross-selling — offering new services or goods that complement your current offerings (e.g., a chiropractor selling vitamins). Switch to a “relationship-based” sales model that gets them coming back to you — offering monthly or yearly service plans, or product bundling at a discounted price (e.g., a series of 10 gym visits). Or lure them in the door with specials or giveaways. To trim expenses, start by automating your business with up-to-date, real-time records for sales, expenses, time spent, and more. Review this data constantly, including office spending and pricing decisions to keep your business running lean and mean. Finally, audit your administrative functions. Are there specialized tasks you could outsource to save money? Would it be more cost-effective to hire part-timers to do these tasks?
Step 2 – Stay visible and connected.
Even if you’ve been around for decades, it’s important to stand up to the competition and wear your reputation on your sleeve. Accreditations, licenses, and certifications — for your business or for individual employees — can set you apart from your competition. Take your reputation online, utilizing social media, your website, and a blog to connect with clients and make strategic alliances. Use ad sharing with complementary businesses, and take advantage of affiliated marketing online tools to drive new customers to your site. Also, eliminate stale, ineffective alliances that may be dragging you down.
Step 3 – Maximize your cash flow.
One of the best ways to achieve a stable cash flow is to offer prepaid retainers or ongoing payment plans. For example, instead of a one-shot eight-hour job at $125 per hour, offer a discounted 10-hour retainer plan at $100 per hour. At first this may not seem as lucrative, but it establishes a relationship and keeps the door open for additional work. Maintenance contracts, for service-based businesses, are another great way to create a brand-new revenue stream. Other ways to keep the cash flowing include once-a-year or once-a-month contract renewal fees (for registration, maintenance, subscription, usage, etc.), managing workload so many customers get ongoing service, rather than just one large client holding up service for everyone else; and managing credit payments to avoid fees or to take advantage of discounts and better terms.
Step 4 – Streamline management costs.
How efficient are your employees? How many customer leads do you have? How much are you owed in Accounts Receivables? Questions like these need to be answered immediately, and to do so, you need to automate your business. Create a user-friendly system for employees to access and add data, keep all information updated and synchronized, and be sure to build in back-office, administrative time (to manage your accounts and your business) into your project fees, hourly rates, or ongoing charges. Automation will allow your business to run smoothly, and will help a scaled-down workforce accomplish more back-office work.
Step 5 – Raise the marketing bar.
Not long ago, networking meant suit-wearing men and women, “Hello labels,” cocktails, big smiles, and big handshakes. Today, marketing is all about immediacy. Give your business an instant presence through online networks including Facebook, Twitter, YouTube, and LinkedIn. Set up group meetings, sales presentations, and special promotions using webinars. Or, offer tutorials, demos, or new certification sessions as webcasts or podcasts for immediate download. Don’t forget to measure all of your marketing efforts to see which ones are indeed cost effective. You can do this with a Customer Relationship Management (CRM) software solution linked to your accounts receivable system.
Step 6 – Make everyone a salesperson.
From telephone to email to face-to-face meetings, every employee has the opportunity to spread your company’s message and engage in potential sales-generating behavior. Jobs are no longer about going to the office and biding your time. Everyone needs to pitch in to help: cutting costs, selling, networking on the web, marketing, and more. Get them motivated to sell your message by encouraging self-development, or through roundtables, conferences, lunch meetings, and webinars. Reward employees who seek continuing education, or who make an extra effort to represent the company inside and outside of work.
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Patricia Sigmon is a successful entrepreneur, a sought-after speaker, and one of our leading experts in the field of profit management. She is founder and president of David Advisory Group (www.DavidAdvisoryGroup.com), a boutique firm that specializes in helping CEOs and small and midsized businesses reengineer their business practices to generate more profit, cut inefficiency, and optimize their earning potential. Her new book is “Six Steps to Creating Profit“ (Wiley).