The mantra of Dragons’ Den is that “turnover is vanity and profit is sanity”. As trite and vaguely annoying as this maxim has grown to be through a decade or so of over-use, it does convey an important truth: the health and sustainability of your business will depend on your constantly looking at your profit margins and thinking up ways to improve them. There are, of course, too many uncertainties and variables in commerce for there to be a magic formula for increasing margins. But there are several exercise you can usefully undertake.
The first rule cited by successful entrepreneurs is that you need to be endlessly vigilant. In other words, you should always be assessing your business for its strengths and weaknesses, identifying new markets and customers and re-evaluating your goals. This will not only minimise the chances of being blindsided by events, but it will also allow you to pick up early on the areas needing improvement, streamlining or re-thinking.
Small businesses and start-ups are often so hectic in the early days that setting aside time for strategic thinking may be difficult, but they should get into the habit of timetabling some downtime for this exercise.
Looking at ways to prune the personnel costs of your business doesn’t necessarily mean considering redundancies. You can look at whether your staff are being deployed for maximum effect and whether junior staff could do some of the work being done by their seniors to free up the latter for more profitable activities. Can you think of any low-cost ways to incentivise increased productivity? Always take time to ask your staff questions. They are so often at the interface between your company and its customers and can give early warnings on trends, problems and opportunities and can therefore be key to increasing profits.
This can mean relatively simple tasks such as ensuring that lights and computers are switched off when not in use, photocopying and printing only when strictly necessary and seeing whether you can recycle or monetise any unavoidable waste-product. However, other procedures and practices should be assessed for their efficiency. Are you wasting time on administration which you could profitably put to better use? Are your buying procedures still robust or are you wasting money on supplies which could be procured cheaper elsewhere? Do you need all the real estate you are using?
Go to Market
Smaller businesses usually have small marketing budgets, and these should be protected even in tough times. There are ways to increase your company’s visibility without incurring too many additional costs. Using social media such as Facebook, Twitter and LinkedIn are the most obvious ways, but there are local magazines which will advertise your business fairly inexpensively, and there are regional networks which are set up to promote enterprise in their area. They can help you. Set up reciprocal arrangements with local businesses whereby you give each other referrals.