Why Not Just Get More Customers?
As business ideas go, this one should be amongst the most important, unfortunately some and in fact many businesses tend to focus on other things, like getting more customers.
Note: Click this link for example below
I’m not saying don’t get more customers, just give it some critical thinking.
Getting more customers would be fine provided you asses your numbers correctly. I’ve lost count of the number of business owners whose businesses lose more money as they seek to acquire more customers!
Question
With that said, what is the most effective way to increase your business profits?
Answer
There is no best way to increase your profits! Gulp, so what do you do? I’m only going to cover one of many options available but relax and read the following.
The true answer to increasing profits is to understand where your business is right now. Not always easy as this is a bit like using your thinking brain and imagining it to the arms of an octopus. I bet there are lots of strands in your business and I’d also bet, that changing one will change others. It’s the nature of systems and the way they feed-back off each other.
So, where to start?
I’d suggest you start by looking at your profit and loss account. You will need to breakdown revenue, cost of goods sold, salaries, PAYE, pensions, and all other costs. If your business has multiple products and services, try, and get a breakdown for each.
Don’t have accounts? Why not! Accounting solutions are now exceptionally low cost so there’s no excuse. If you use spreadsheets, then I really hope they are in good order and you can see and understand what’s going on!
Hopefully, your business is making a profit! And if it isn’t you have a strong balance sheet and access to cash, and lots of it. Nothing destroys a business quicker than a lack of cash!
If your business has been trading for several years, it’s a good idea to look at several years’ accounts. They do sometimes show trends, I spot these trends by looking at ratios and you could do the same.
What ratios are worth looking at?
Deciding what ratios to consider is not rocket science, the most obvious numbers are revenue, cost of goods sold, salaries/wages (including PAYE, Pensions and Other Benefits), and other costs.
If you do have several years trading, you might be able to see what a ratio was a few years ago and what it is now. By the way, these ratios can only be used sector by sector. What I mean here is that you may decide to compare a competitor’s ratios to your own. But don’t make the error of thinking all companies will have the same ratio because they won’t.
Hop along to companies house and compare a competitors accounts to your own figures. You will need to find one big enough and who reports full accounts including profit and loss. Looking at a competitor will show you where they are, and you will be able to compare their ratios with your own.
I would expect this broad-brush approach to provide enough information in which to draw some conclusions.
Ultimately, your profitability will be improved by either cutting costs, changing something or a combination of the two.
In terms of changing something, that is almost limitless and beyond the scope of this business idea but please keep a watch out for other profit building ideas.
Increasing productivity i.e. getting more out than you are putting in is where the big successes are hidden.
Have fun!
| Fictitious Company | ||||
| TURNOVER | Item | Figures | Percentage of Turnover | |
| General Sales | £861,618 | |||
| Total: | £861,618 | |||
| LESS COST OF SALES: | ||||
| General Purchases | -£231,918 | |||
| Total: | -£231,918 | -26.92% | ||
| GROSS PROFIT: | £629,700 | |||
| LESS EXPENSES: | ||||
| Directors Salaries | -£34,764 | |||
| NET Staff Salaries Paid | -£320,813 | |||
| PAYE | -£70,160 | |||
| Pension | -£19,650 | |||
| Total all Salaries | -£445,387 | -51.69% | ||
| Rent | -£76,000 | |||
| Water Rates | -£3,264 | |||
| General Rates | -£17,924 | |||
| Premises Insurance | -£2,135 | |||
| Electricity | -£18,140 | |||
| Gas | -£2,132 | |||
| Waste | -£7,286 | |||
| Travelling | -£3,098 | |||
| Telephone and Mobile Charges | -£3,180 | |||
| Stationery | -£2,063 | |||
| Books, Magazines etc. | -£1,117 | |||
| Hosting Fees and IT Consumables | -£685 | |||
| Audit and Accountancy Fees | -£3,302 | |||
| Professional Fees | -£360 | |||
| Repairs and Renewals | -£21,174 | |||
| Cleaning | -£11,708 | |||
| Bank Charges | -£3,237 | |||
| Merchant charges | -£5,266 | |||
| Subscriptions | -£3,515 | |||
| Clothing Costs | -£1,124 | |||
| Training Costs | -£1,383 | |||
| Insurance | -£2,057 | |||
| Refreshments / Staff Welfare | -£58 | |||
| Total: | All Other Costs | -£190,208 | -22.08% | |
| Profit Before Tax: | -£5,894 | |||
