Managing Your Cash Flow

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7 ways to boost your profit margins

5 Mins

If you are in business purely for the love of what you do, then you can do what you do for enjoyment, perhaps as a hobby. You don’t necessarily need the additional burden of dealing with everything that comes with running a business if that is your desired outcome.

The purpose of a business is to make money. It is how that profit is used that differentiates a private business from a charitable organisation. Both need to make a profit, though. The profits in a private company are generally utilised by the owner for whatever they choose, whereas the profits of a charity are used to re-invest and fund new services. Don’t be mistaken; they must both make money to survive.

So let’s look at seven things you can do to boost your profit margins:

1. Increase your prices

The key here is to make sure any price increases are greater than any increase in the underlying costs for providing that product or service, so that it has a positive impact on the margins being made. How long has it been since you looked at your prices? When was the last time you raised them?

Obviously, the ability to increase prices will be dependent on the type of business you operate and the marketplace you operate in. A business in a competitive marketplace is less likely to be able to increase prices easily than a business that has differentiated itself from its competition.

2. Streamline your operations

Reduce unnecessary management. Systemise the routine, humanise the exceptions. It’s all about becoming more efficient. Reduce duplication where possible and automate as much as possible. Make sure you are taking advantage of any technological advancements that are relevant for your business that can help you provide your products and services more efficiently, which generally translates into lower costs.

3. Know your actual costs

You can’t improve what you don’t know. Know what things cost and make sure you include everything. Don’t leave any costs out. To better manage the results you need to have access to regular management information on this area, which should be produced frequently. Stay on top of the numbers. Monitor performance regularly, always keeping your profit in focus!

4. Pay with cash rather than loan interest

Interest on loans and overdrafts is a cost to a business so therefore reduces your margins. Don’t pay with debt if you don’t need to, especially if you have cash available to pay instead. It’s not always possible to do this but with careful management of your cash flow, the need for using such costly things as factoring and invoice discounting can usually be eliminated.

5. Keep overheads to a minimum

Don’t take on any unnecessary cost commitments that aren’t linked to revenue generation activities. Stay lean and keep your overheads under control.

6. Buy only what you need

Don’t have excess supplies hanging around unnecessarily. Have a system in place to control the purchases of your team. This could be done by only allowing your team to buy with an authorised purchase order. Any money tied up in unnecessary supplies is money that isn’t working for you to help generate more revenue.

7. Reduce all costs by ten per cent

Undertake a business-wide campaign to cut all costs by ten per cent or whatever percentage reduction you are seeking. Perhaps consider incentivising and rewarding your team for achieving whatever cost reduction target you set.

Kelly Clifford is the best-selling author of “Profit Rocket: The five key focus areas to skyrocket your profit” and founder of Profit in Focus

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