It is surprising to know how many business owners don’t know the difference between profit and revenue. They believe that just because money is coming into their business, they are actually making it. Money coming into your business is not yours until expenses have been paid. Once these expenses are paid, the remaining is the profit. Many businesses break even or are in debt after their expenses are accounted for. There are business owners who do not even know this is occurring, they just pay out money and go about their business.
Knowing the ways to improve profitability of your business is very important to succeed.
You have probably heard about businesses who have a huge customer base, but they have to shut down due to financial reasons. This is because they do not have a strategic plan that outlines how their business will achieve profitability. Then when their business is unable to handle their basic business operations or expand their operations, they are surprised as to why they have financial issues.
You do not want to be one of those businesses that cannot earn a profit due to poor planning. It is best to learn the tactics that can be used to develop a business that is very profitable. We have prepared some tips that will help your business become profitable. Read them and learn how your business can develop a strategy that leads to profitability.
1) Prepare a strategic plan with 1-year, 3-year, and 5-year goals
Business takes time to develop, therefore, you need to create a strategy that has a five-year outlook at the minimum. Each year needs to define how your business will grow over the years. As your business grows over the years, it will become more complex, which means your financial plan needs to grow with your business. This means your strategy needs to not only define how you will make money but also how you profit the majority of the money you generate. Constantly review your strategic plan so that you are aware if the results you produce match your set goals.
2) Determine up to five key success factors for your business
Your business will need to operate under five principles that will determine its success. Once these principles are determined, you will need to monitor these factors weekly to ensure that your actions align with them. These key factors should focus on growth and prosperity. Sales and expense controls should definitely be two factors that are also within your success factors. Without these two factors, you will find it hard for your business to be profitable.
3) Implement and monitor a budget
A budget is what helps to keep your expenses in control. Your budget needs to be followed closely in order to ensure that your finances remain in order. Follow your budget strictly and only go outside of it when it is beneficial to your business generating more money or keeping more money. Your budget also needs to be revisited quarterly, if not monthly. This will help your budget remain aligned with the growth of your business.
4) Each year, abandon up to 10 percent of your business that is not aligned with your strategic plan
A profitable business is one that gets rid of dead weight. You will need to analyze which parts of your business are the least profitable and do away with them because they take up both time and money. It is better to focus on those business activities that bring in money, which justifies your decision to maintain their existence.
5) Seek input from outside your organization
Consultants are professionals who can help you see things in your business that you are too blinded to see. When you are within your business, it is hard to separate your vision for your business from its actual reality. Therefore, outside advice can help you discover your business’s weaknesses, and how to improve these shortcomings. Do background research before hiring a consultant. You want to be sure you hire someone who can deliver on their guarantees and for their high fees.