Starting your company can feel like the biggest challenge you'll ever face but making your business more profitable can be a whole new obstacle to overcome.
Staying profitable is an essential part of running a successful business, but this can be harder to achieve than it may seem. Starting up your company is a massive milestone, but it's important to ensure you have a business model that allows you to be profitable, and increase this profitability over time.
A core part of this is making your organization as streamlined as possible, reducing outgoings costs that negatively impact the business, and ensuring that you are getting the most value for money from your expenses.
Controlling business costs
The costs of running your business can rise, which can soon put pressure on your cash flow and ability to operate. If this is allowed to escalate, it could result in your organization having to fold.
No matter how established your company is, you always need to look at ways you can reduce the running and outgoing costs of your operation. Whether you are looking at your suppliers, expanding your team or buying new equipment, there needs to be a sound business reason for you spending money. If it won't help you make more revenue - either directly or indirectly - then it shouldn't be something you're purchasing.
It's not about spending as little money as possible, you need to ensure that you are investing your business profits in the best way. This allows your company to grow, whether through increased sales or taking on more employees.
Understanding your business model
In order to find the areas where you can most effectively make cost savings, you need to have a good understanding of your business model and how to balance this against your accounts.
Do you know where your costs have risen over the past year? And more importantly, why? In order to answer these questions, you need a way of collating all your accounts data in one place so you can quickly and effectively see what improvements can be made without jeopardizing your operation.
For many companies, this can be the point where hiring a financial specialist makes sense or outsourcing this area to a third party. However, if you have a good understanding of your figures, bookkeeping software can help you to bring it together in one clear dashboard.
Making cuts in the wrong areas could significantly damage your business so it's important to understand which expenses allow your business model to be effective, and which won't have an impact.
You also need to understand the sector you're operating in to see whether you are under or overcharging consumers. Your company needs to remain competitive but setting your prices too low could significantly reduce your profit margin and even result in losses over time.
Suppliers and services
Suppliers can be one of the most difficult areas to make sure you are getting value for money, as you don't want to potentially sour a long-term relationship. It's a balancing act between finding the cheapest supplier and getting the best quality of service possible.
Having unreliable suppliers can result in your business being ground to a halt or wasting a lot of time trying to resolve a problem. If, like most modern companies, you rely on the internet, you need to know that your supplier will sort the problem as quickly as possible, without you having to spend every second of your day chasing them.
This is where establishing a good relationship with your suppliers can be key, but it's important to not neglect the costs. You may find that it's worth spending a little more on a reliable supplier who can save your company money by being more effective.
Looking at your consumers
Are your marketing efforts being effective or are you throwing money down the drain? Digital marketing is one of the main ways that companies attract and engage new customers so it's important your investment here is making profit.
The good thing about digital marketing is that they are able to track progress with KPIs and can direct these to line up with your business goals. However, it's important that you listen to what these specialists say. If they outline things that could be preventing them from being successful, you need to work to reduce this burden.
It may be that your website layout is outdated, buggy or not mobile-friendly and this can be an expensive thing to fix. In the long run, it is likely to be value for money though, as it could be significantly hampering your ability to attract new customers.
Insights for Professionals provide free access to the latest thought leadership from global brands. We deliver subscriber value by creating and gathering specialist content for senior professionals. To view more Finance content, click here.