As small business owners, we often tend to look for radical changes when it comes time for a new direction or to boost revenues. We set our sights on increasing profits by 10 percent or cutting expenses by 20 percent to have an even better year. But instead of searching for big solutions, often the simplest one is right under our noses. Using an idea called the Power of 1 Percent, a business owner should look at making incremental changes to boost her bottom line. For instance, instead of raising prices by 5 percent, consider increasing them by just 1 percent. Consider that impact, combined with boosting sales volume by one percent, lowering the cost of goods sold by one percent and reducing expenses by one percent.
When all is said and done, the combined impact could result in an increase in net profit of more than 9 percent. It’s like losing weight — you cut out a soda here and a candy bar there and incorporate exercise, and you see positive changes in your body. Putting the Power of One into action doesn’t have to be difficult and should be done yearly. It’s much more effective over time than when a business is faced with having to cut expenses by 10 percent or laying off staff to stay alive. It can be as easy as sitting down with business partners or your team to identify ways you can save money and specific things your staff can do to help increase profits.
Cutting costs
Melanie Kirk, a partner at ATKG, LLP, a local accounting firm, says the best way to cut costs is to look for trends in your own business. She said you may not focus on reviewing your expenses and they can begin to creep up on you. For instance, if you have an office kitchen, Kirk says, do you really need to stock it with Starbucks coffee instead of Folgers? Or do you have to use the name-brand office supplier for your pens, sticky notes and paper? Business owners should try to take advantage of supplier discounts when available. Many suppliers offer a 1 percent to 2 percent discount for bills paid within 10 days. On the other hand, there may be a hefty finance charge if invoices are not paid on a timely basis. Collecting accounts receivable faster is another area that business owners should master. This is one of the prime areas causing small businesses to suffer.
“It’s easier (collecting) if those clients know you will start calling or bugging them after 30 days; the squeaky wheel gets the payment,” says Kirk, adding business owners should educate their clients about this from the beginning. SherMerree Conn, a business banking officer at BBVA Compass Bank, tells her customers when it comes to accounts receivables, a good way to get paid faster is to break up the project into parts, billing each milestone of the project as it’s reached. Making sure clients have a way to pay with a credit card also gets faster payments.
To lower costs, Conn recommends entrepreneurs team with other owners in going after bids or projects, and use technology to reduce manpower. She says some banks are now offering customers equipment to scan checks from their home or business to make deposits instead of paying an employee overtime to make a deposit. To really get proactive, Conn and Kirk both say owners should reassess their standard costs – like insurance. They may find they are paying for something they no longer need. Another area where you can save money is with office lease space. The down economy has caused more office vacancies, giving you a chance to find cheaper space if you are close to renewing. Conn was able to save a client $23,000 by refinancing high-interest debt when she realized the owner qualified for a lower rate.
Growing the business
Growing your business also can be accomplished with incremental changes along the way. The first step could just be putting in more face time with clients or good old networking. “I like to get face-to-face with the customer just to see what’s going on in their lives and to connect with them,” Kirk says. “Almost always when you are in front of them they think of something they need help with. If it’s something you can do, that’s great. If not, I try to refer them to someone else who can help them. This earns customer loyalty and brings referrals. Every time you get in front of your customer, it helps you and the customer.” Joining business or professional organizations can also help you meet others that will refer you to their own clients in the future. While you may not want to attend a group’s luncheon or early-morning breakfast for networking, you might find the group’s charity or community project is a better fit. This can be an excellent referral network you build the longer you stay with the group.
Another way to grow your business is to outsource and clear up the clutter. If you spend too much time on the little details, you reduce the amount of time spent on the most crucial task: selling or focusing on getting new business. Conn says she often sees many businesses spinning their wheels and wasting time on tasks they can easily outsource to other businesses. For instance, if payroll is not your thing and it consumes lots of business hours, find a business that can do it for you.
You also should consider hiring a business coach to make sure you are going in the right direction, adds Conn. Business coaches can help you see a clearer picture and give you objective advice. There may be times when you don’t want to discuss critical business decisions with employees who might be in fear of losing their jobs and could cloud your decision making.
When it comes to pricing, don’t get stuck in the past, says Kirk. She adds business owners need to be looking at pricing at least once a year.
It also doesn’t hurt to know what your competitors are charging to make sure you are not pricing yourself too low or too high. You may find your prices are so low that it could be like working for minimum wage.
One final tip Conn gives is to make sure you have your banker, certified public accountant and staff working together so they know what your business can and can’t do. She says one of her customers was away from the office and needed paperwork that the banker and CPA were able to get behind the scenes without having to interrupt the owner.
But before any of these tips and advice can work for you, you need to take the time out quarterly or yearly to strategize on how you can implement some of these changes. While you may say you don’t have time to brainstorm, finding ways to make these small changes could result in 10 percent more profit.
Melissa and Aissatou are partners in MediaWrite, a local writing, editing and marketing firm. MediaWrite can be found at www.MediaWriteSATX.com.
Author: Melissa S. Monroe
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