However is just increasing sales enough to improve your profit? Successful businesses will not only focus on the money they are getting in but also the money that goes out of the business. Below, I have listed five traditional and not so obvious ways to improve profit.
1. Review Essential Running Costs
As my business is to work with companies to help them save time and money on their essential spend, and therefore improve profitability, it would be very remiss of me not to mention this as one of my top tips! However how easy is this to do and what are the benefits? The answer is it depends! The process of reviewing your essential costs can be time consuming – checking current contracts, dealing with different suppliers, terminating arrangements etc. If you have a finance and/or procurement specialist with the time and expertise to do this, then fine. However, the majority of smaller businesses do not employ someone to negotiate the best deals on all their essential costs. Buying decisions tend to be made by owner-managers who took on the role in the early years of their business. As the company grows, they don't have the time to get the best deals, yet are still too small to justify employing a procurement specialist.
The answer I would say to any business in this situation is to outsource this key role to specialist partner such as BCR Associates. We have been helping businesses to boost profitability through cutting overspend on running costs for a number of years. To date we have saved millions of pounds for clients who rely on us as part of their procurement process allowing business owners to do what they do best which is running their business.
2. Ensure you have the right accountant in place
Every business will need the service of an accountant at some stage of its existence; not least to ensure that the statutory requirements in terms of year end accounts and taxation are met. All accountants should be able to provide this service but is this enough? More and more businesses are now looking for their accountant to be a “trusted advisor” and to become part of their “team” and it is no longer enough to see your accountant once a year to sign off accounts. I see more and more accountants embracing this change and are looking to work with their clients to help them with their business; not just with regards the practical aspects of their service but also general business advice and support. A good accountant will also assist your business to review your costs and look to maximise your profit in the most tax efficient way to the benefit of both yourself and your business
3. Don’t ignore HR and Health and Safety
As an employer you are under more and more pressure to keep on top of all new and updated legislation in relation to HR and Health and Safety. At the same time, employees are increasingly aware of their rights and if they feel they have been denied these rights, they have redress by taking you to an employment tribunal or, in the case of an H & S breach, to court. For smaller companies, this responsibility often falls on the director/owner and it is difficult to keep up to date with your legal requirements. Indeed, statistics show that 80% of UK businesses do not have proper processes in place to protect against grievances and tribunals.
What has this got to do with profit improvement you may ask? Well consider these facts:
• The year ending April 2010 saw a 56% rise in tribunal claims.
• In 2000, there were 9,000 tribunal applications from employees taking employers to tribunal. In the year ending March 2010 it rose to 411,000 applications.
• Approximately 70% of employers will either settle or lose at tribunal. Awards average £9,000 to £33,000 and costs average £2,500 (plus the costs of the other side).
• In 2009/2010, 1,026 health and safety offences were prosecuted by the Health and Safety Executive, of which 72% resulted in convictions.
• Those found guilty received fines totalling £11.6 million
Any business that does not comply with current legislation can therefore cost a business owner a lot of money; this will come straight from the bottom line as well the resultant impact on business reputation and marketability. Therefore spending some money on external help and advice at the outset can protect your business and profitability in the long term.
4. Be green?
There is a perception that improving a business’s green credentials can be costly. That may very well be the case depending on the requirements of the business, the impact this may have on processes and raw materials and other environmental issues. However, there are a number of simple steps that can be taken that will are not only environmentally-
• Switch off lights when a room is not in use. This is an obvious change but it costs nothing and can save you up to 15% on your energy bills.
• Turn your thermostat down. You could cut your heating bills by up to 10% if you reduced your office temperature by 1°C
• Don't leave office machinery on standby. Turn off your monitor when it's not in use and unplug printers and scanners at the end of the day. A photocopier left on overnight wastes enough energy to print 1,500 A4 copies.
• Use energy-saving light bulbs. Just one can save you £100 over the lifetime of the bulb; they last up to 12 times longer than ordinary light bulbs and give off the same amount of light.
• Buy environmentally-
• Close windows and doors at night to prevent heat loss. A window left open overnight wastes enough energy to drive a small car 35 miles.
• Don't overfill the kettle at brew time! Heating water uses a lot of energy and boiling more water than you need can cost an extra £20 a year.
5. Consider using a business advisor
According to a survey conducted by accountants Moore and Smalley, more than two fifths (42 per cent) of those running owner-managed businesses have never used the services of a business advisor or coach. Also, figures from the government’s Small Firms Enterprise Development Initiative suggest that 70 per cent of small businesses that receive mentoring survive for five years or more, which is double the rate compared with non-mentored entrepreneurs, and are 20 per cent more likely to experience growth.
Business advice can come in a number of formats whether it’s paid for business advice, free advice provided by a business support organisation or consulting another experienced business person and, used correctly, it can have a significant and positive effect on business performance.
I come into contact, and work with, a number of business advisors specialising in a variety of areas whether it is business planning, process improvement, marketing and sales, procurement, exporting and environmental policies. I believe they can add great benefits to a business and, although there may be some initial cost involved, the support and advice provided can provide a real and positive impact on a company’s profitability.