In previous blogs, we discussed the steps needed to launch your small business along with a few keys for success. Now it’s time to take a look at how you can make your small business profitable.
Becoming a profitable business doesn’t happen overnight. In fact, it can take a couple of years before a business actually starts to make a profit. To be successful, a business needs to not only make a profit; it needs to grow, adapt and plan for the future so it can remain profitable.
Here are some essential tips you can use to help your small business profit.
Many first-time entrepreneurs make the common misconception that profit is all of the money that their business takes in. That money is called revenue. And that money is needed to pay taxes, fulfill payroll, buy supplies, invest in inventory, and address all other operating expenses. The money that’s leftover is the profit.
To achieve and retain profitability, a business owner must have a keen understanding of its finances. If you’re starting a business, you need to know if your expenses are outweighing your revenue. If so, you’ll need to take corrective action to reduce expenses and increase your profit margin.
Learning how to read and analyze financial statements such as income statements, balance sheets, cash flow statements and statements of change in equity, gives you the knowledge and insight needed to set and maintain a course for profitability and success.
Create a Business Map
As we detailed in our previous article, before you open a small business you need a business plan. This document allows the small business owner to define their core business, activities, objectives, and outline the steps needed to achieve these business goals.
Once your business is open, it’s time to create a business map. While a business plan outlines the vision and purpose of your business, the map helps you plot the best course of action if and when obstacles arise.
By focusing on various future scenarios (such as supply chain disruptions, higher operating costs, employee turnover) and developing methods in advance to address and overcome these issues, you’ll have a much greater success at remaining profitable even during adverse situations.
Establish Achievable Goals
If your sole business goal is “Make a lot of money so I can be rich” then your odds of achieving success and profitability are slim. Why? That’s not a goal – it’s a wish.
For a small business to profit, you need to establish achievable goals. This can be accomplished by setting SMART (Specific, Measurable, Achievable,Realistic and Time Bound) goals for yourself and your business.
Small business SMART goals can be something as simple as “Find a new office supply vendor in 30 days” to something more substantial such as “Pay off $50,000 in business debt by end of the year”. In both examples, you have established realistic goals to reduce expenses and increase chances of profitability that can be achieved in a timely manner.
Setting up realistic goals that can be achieved in a short period of time is a much better way to operate your small business than goals that are more akin to dreams and wishes.
Identify Strengths and Weaknesses
Another way to increase your chances of profitability is to be well aware of your operation’s strengths and weaknesses. By doing this, you’ll be able to focus your efforts on areas of the business that need improvement so that you can better support and boost the areas that are performing.
For example, if your sales team is firing on all pistons but your marketing efforts are ineffective, then it’s time to focus on fixing that deficiency. This can be addressed by hiring a marketing specialist to fill the void on your current marketing team or by relying on a local agency to help you develop, implement and maintain your marketing plan.
One of the reasons many small businesses fail to make a profit (and eventually close their doors) is their lack of innovation. Looking down the road to the future of your respective industry and adopting new forms of technology and methodologies are great ways to remain competitive, relevant and profitable.
Many small businesses have accomplished this by investing in financial management software to better manage their operating processes, embracing laptops, tablets and smartphones instead of desktop computers to help staff work from various locations and environments, and choosing coworking or shared office spaces instead of leased offices.
All of the innovations (and many others) are great ways for a small business to reduce expenses, stay ahead of the competition and set a course for future profitability and success.
Now you know some first-rate tips to help your small business profit and achieve continued growth. If you’re interested in reducing your operating expenses to increase your profit margin, you may want to consider choosing a coworking or shared small business space like those offered by HeadRoom.
With locations in Media, Aston and Wayne, PA, our office space options are perfect for start-up businesses like yours. We’re now accepting memberships at all of our locations, so contact us today to discuss which options will work best for you!