Many small business owners and entrepreneurs have been hit hard during the recent pandemic. As we move toward recovery, increasing profits and growing your business should be on the top of the list for those who own their own companies. Smart entrepreneurs know the only true way to measure if their business is successful is by concentrating on profits rather than revenue. While creating your “new normal” in your business, you can simultaneously focus on squeezing more profits out of it and experience a boost in growth almost overnight. Here’s how.
Pay Yourself First
One of the best pieces of advice I can give entrepreneurs is to begin with the end in mind. What does this mean, exactly? It means that you need to focus on what you want your business to do for you instead of what you’re doing for your business. You want your business to support your chosen lifestyle, right? That’s why you went into business for yourself instead of working for Corporate America. If you’re running your business like a business, you pay yourself first. That may seem counterintuitive if you’re trying to grow, but it’s actually imperative for growth. When you pay yourself first, you stay on firm personal financial ground and put yourself in the right position to grow your business.
Increase Profit Margins
So the next question is, how can I pay myself first if there is no extra money after operating expenses each month? There are two ways: increase sales and profit margins, or cut expenses. We all know, theoretically, how to increase sales. To increase profit margins, you need to reduce the cost of production/delivery of your product or services and take a percentage out of every sale as profit. This could mean changing suppliers, outsourcing certain parts of your process, or adjusting your delivery methods. The point is, you need to have enough margin in every sale to take a cut for yourself. If you can’t currently do that, changes need to be made.
Cutting expenses is the other easy way to instantly boost profits. Here’s a simple trick I use with entrepreneurial advisors I’m mentoring: cancel all your business credit cards. This forces you to look at all the automatic payments you’re making each month. Some people have several hundred dollars or more charged to them each month and they’ve completely forgotten why. When you cancel your cards, you’ll have to re-evaluate all your monthly expenditures and decide which are worth keeping and which you can cancel. This simple exercise can instantly cut your expenses and boost your profits. Other ways to cut expenses include going paper-free and getting rid of your printer, using programmable thermostats and other electronics to save on utility costs, and reducing office location costs.
While now might seem like a time to protect what you have and focus on retaining the status quo, it’s actually the perfect time for growth. With just a few small changes, you can boost your profits by 20% or more overnight and be well on your way to even more growth in the rest of 2020. Want to learn more? Check out our finance for entrepreneurs course and leave any questions or comments below.