7 Ways to Improve Your Businesses Profitability
By Kym Arnold & Mahesh Kumar
Do you currently run a business or want to buy or establish one? If so, one of the most important skills you need to have is to understand your business's drivers and know what levers to pull to increase your business's profitability.
Business drivers are the key inputs and activities that affect the business's overall financial and operational performance. You need to identify and understand what these are for your business.
Once you have identified your drivers this will help you to know which business levers you should pull to increase your business's profitability. There are many levers in business but below we have outlined 8 main levers that you could consider depending on your business’s drivers:
Increase sales volume.
This is the most obvious way to grow your business, but it also requires careful planning and execution. You need to identify your target market, understand their needs and preferences, and be able to show them the value they will be receiving. You must also monitor your sales performance and customer feedback to ensure you meet their expectations and deliver quality service.Adjust your pricing strategy.
Pricing is a powerful tool to influence customer behaviour and perception. You can use pricing to differentiate yourself from competitors, attract new customers, or increase loyalty. However, pricing also affects your profit margin, so you need to balance the benefits and costs of changing your prices. A small increase in price can have a significant impact on your profitability, as long as it does not affect your sales volume negatively.Reduce your cost of goods sold (COGS).
COGS refers to the direct costs of producing or delivering your products or services, such as materials, labour, and transportation. You can reduce your COGS by negotiating better terms and prices with your suppliers, optimising your production processes, minimising waste and defects, and improving your inventory management. Increasing productivity can be done by better utilisation of your labour and materials.
You should also analyse your profit margin by product or service line and customer groups to identify which ones are more profitable and which ones are not. You may be able to increase your profitability by focusing on the most profitable product or service lines or eliminating the least profitable ones.Cut down your overhead expenses.
Overhead expenses are the indirect costs of running your business, such as rent, utilities, insurance, marketing, and administration. You can reduce your overhead expenses by reviewing each expense category and finding ways to save money or eliminate unnecessary spending. For example, you can switch to more energy-efficient equipment, negotiate lower rates with your service providers, outsource some functions, or automate some tasks. You should also track your overhead expenses as a percentage of your revenue and compare them with industry benchmarks to see how you are performing.Improve your accounts receivable management.
Accounts receivable refers to the money that customers owe you for the products or services they have purchased from you on credit. You can improve your accounts receivable management by setting clear credit policies and terms, invoicing promptly and accurately, following up on overdue payments, offering incentives for early payment, and using online payment methods. By improving your accounts receivable management, you can reduce the time it takes to collect your money and improve your cash flow.Optimize your inventory management.
Inventory refers to the stock of products or materials that you have on hand or in transit. You can optimise your inventory management by forecasting your demand accurately, ordering the right quantity and quality of products or materials, storing them properly, and selling them quickly. By optimising your inventory management, you can reduce the cost of holding excess inventory, avoid stockouts and lost sales, and increase your turnover rate.Extend your accounts payable period.
Accounts payable refers to the money that you owe to your suppliers for the products or materials they have provided to you on credit. You can extend your accounts payable period by negotiating longer payment terms with your suppliers, taking advantage of discounts for early payment, and paying on time and in full. By extending your accounts payable period, you can defer your cash outflow and improve your liquidity.
These are just some of the strategies you could implement for your business, but we understand that there is still a lot there to process. We recommend that you review the 7 strategies and rank them by how easy the strategies could be to implement and what level of impact they are. You then focus on implementing the easiest and most impactful strategies first.
We have a number of useful tools, such as Waste Audits, which could be used to highlight the best levers for your business. If this is something you are interested in doing for your business, but you don’t know where to start, we're here to help. Our team of experts will guide you through the process and make sure you get the results you need. If this is something you are interested in doing for your business but you don’t know where to start then reach out to us.
Fuel Tax Credit Rate Changes
For those of you who claim for fuel tax credits in your BAS preparation please be aware that there have been changes in the rates from 05 February 2024. You will need to use the rate that applies on the date you acquired the fuel.
Access the Australian Taxation Office Fuel Tax Credit Calculator.
2024 Rural Tour - OUT NOW
Coming off the back of an extraordinary few years in the farming industry, we are now facing an unstable market. Here is your chance to hear from the Lincolns team and guest presenters on a range of key farming industry topics – bank funding, cashflow challenges, succession and much more.
Plus, ask your most challenging questions to an expert panel of accountants, bank managers, and farming consultants. See full details here.
Reduce stress and gain insight from industry experts with Lincolns during this highly informative half-day seminar. We will cover the topics most relevant to the farming industry right now - cashflow and funding concerns as commodity prices drop, succession as an ongoing and ever evolving discussion, carbon requirements plus much more. Join the Lincolns team and guest presenters for this collaborative and interactive session.
Tea and coffee on arrival and a light lunch provided.
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The Little Lincolns Lambies need your help!
We need your support during the 2024 Spinathon.
Spinathon is an annual fundraising event for Albany Community Hospice. The Spinathon will run over a 24 hour period from 12pm Saturday 9th March to 12pm Sunday 10th March. Participants will be taking on the challenge of keeping stationary bikes spinning over this time to raise funds for Hospice at Haz Beanz at the Albany Marina.
All funds are donated to the Albany Community Hospice who provide award-winning holistic palliative care to all who need it. It is the aim of the Hospice to provide this service at no cost to their guests or their families. Thanks to the ongoing generosity of the community, they have been able to continuously achieve this aim.
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