This week, we are going to talk about profit, and I am going to share seven things that you can do to increase profit in your business this year, next year, and the year after.
They are all evergreen in nature, so if ever you’re feeling like your profit isn’t quite where you want it to be, refer back to these seven things:
1 & 2. Increase sales and reduce expenses.
Now, we all know the basics, right? If you want to increase profit, you need to increase sales and reduce expenses. That’s number one and number two, right off the top.
If you are looking to generate more profit in your business or if you don’t have profit in your business, it’s either because you’re not charging enough, or you’re spending too much.
Plain and simple. It’s math. It really is the addition of sales and the subtraction of expenses. What’s left over is your profit.
3. Price for profit.
Are you pricing for profit? Too often when we are pricing our products or services, we are pricing without having profit in mind.If you want to have a #profitable business, you need to ensure that you are pricing your #business in such a way that it guarantees you will have a profit at the end. Read more: Click To Tweet
In my business, as an example, I look at how much it costs me to have someone do the work. I look at how much it costs me to have someone manage the work and the day-to-day operations of the business. And then, I look at how much profit I want leftover. You need to know those things in order to be able to price accordingly.
Now, I am a service-based business, so I’m not dealing with the cost of goods. But, if there is an actual hard cost to the good you are selling, you need to factor that into the equation to ensure you get the profit that you want in the end.
4. Understand the difference between cashflow and profit.
The next thing that you want to do is make sure you don’t misunderstand the difference between cashflow and profit. Cashflow is a snapshot in time of how much money you have in the bank. It’s not profit.
Often what happens is business owners look at how much money they have in the bank and they think that all that money is profit.
And then they end up in trouble.
They end up in trouble because they spend their cashflow and the cashflow is actually more than what their profit was. And so, unintentionally, they have degraded their profit.
5. Review a monthly P&L.
Either have a bookkeeper, an accountant, someone on your team or yourself look at your financials on a monthly basis.
Let’s go back to number four where I said, be careful you’re not spending your cashflow or thinking your cashflow is profit. Almost every business charges tax. In Nova Scotia, for example, we have to pay a 15% sales tax on products and services. So, if I charge $100 for something, my customer’s going to pay me $115. That means there’s $15 in the bank that doesn’t belong to me.One huge mistake that #BusinessOwners make is thinking that their cashflow is theirs free and clear to spend it, and it's not. Read more: Click To Tweet
The only way that you can really know what your profit is and what your tax implication is, is if you’re getting your accountant or bookkeeper to do monthly reporting for you.
I had one of those years where I owed a ton of money to the government in taxes, it was a big surprise, and it wiped out my cash flow. Because of that, one of the things I do in my business is I have tax payment installments automatically come out of my bank account every month. That way, I don’t have to think about it. I don’t have to worry about it. I know it’s taken care of.
And, I revisit this at the beginning of Q4 to find out from my accountant if, based on projections, I’ve overpaid or underpaid. This allows me to adjust accordingly and plan my cashflow in the business.
Another great way to increase your profit is to learn how to negotiate. Negotiate what you pay for things.
When you are buying your email marketing program, instead of paying for it monthly, why don’t you pay for it for the year and save 20%?
There are different places where you can negotiate better rates so that you can reduce your expenses and increase your profit margins. But, a lot of us are afraid to ask for discounts.
We are afraid to ask for a break on pricing, or we are afraid to negotiate a better deal on the money that we are spending. Don’t be afraid. There is no downside – the worst that somebody can say to you is “no”.
7. Move profit to the top.
I would say profit is the bottom line result, but, you should actually move it to the top line. Mike Michalowicz talks about this in Profit First. If you really want to make a profit, you need to prioritize it as much as you prioritize selling. This means you should be looking at what your net profit is on a monthly basis.
If your bookkeeper says you have $3,000, $30,000 or $300,000 in profit, you need to decide what you want to do with that money so that you don’t just spend it without realizing it.
Lots of people go to their accountant at the end of the year to file their taxes and find out they had $20, $30, $50 or $100,000 dollars in profit, but they don’t have that money in the bank because they spent it. They didn’t know that they made that much profit, and they still owe taxes on it. Don’t be that person.
Get to know profit.
Do not be afraid of your profit. Instead, embrace it and decide what you want to do with it. I make very specific decisions around profit.What percentage of #profit am I going to pay myself as the owner of the business as a bonus for having a good year? How much of my profit am I going to leave in the bank for cashflow? How much cashflow should I have in the bank at any… Click To Tweet
But, at the end of the day, you can’t consider what to do with your profit if you’re not generating any.
Priority number one is learning how to price (that was tip number three) and understanding that everything you do should be about generating a profit in your business. And then, you need to protect that profit so you don’t get to the end of the year and find that it’s gone missing.
You can’t have profit unless you sell. I love sales, I love marketing, I love all that stuff. But, what I love the most, is knowing that I have helped a business owner generate profit. Someone that I worked with years ago contacted me this year and they said, “Oh my God, Lisa. We had so much profit, we didn’t know what to do with it. We had to spend it – we had to spend all of these things and prepay all of these things because we didn’t want to have to pay that much in taxes.”
That to me is like music. That is the best thing in the world to hear from somebody, and that’s what I want for you, too.
Which of these seven tips do you need to work on? Let me know in the comments, below!