Small Business Pam Watson Korbel

Small Business Pam Watson Korbel
Picture of Pam Watson KorbelPam Watson Korbel is an expert on small business and revenue growth. She personally managed exponential growth in two companies: a software firm that grew by 500% in four years and a health care firm that grew by 1800% in eight years. In addition, she has been advising fast growth companies as a coach and consultant since 1996.

Ideas to Improve Profit

Ideas to Improve Profit

Small businesses should obsess over improving profit because that single factor drives the owner’s wealth and the valuation of the business. By breaking down the formula for profit – revenue minus expenses equals profit – entrepreneurial managers can identify several ways to improve profit.

Increase Sales

Increasing the top line in your business leads to revenue growth. Some ideas to add revenue without increasing expenses as fast include:

  1. Sell more of your existing products and services to your existing customers. While this seems too simple on the surface, it is an opportunity of which most businesses do not take advantage. A system of regular communication and contact can add sales to customers already in your court.
  2. Increase lead generation efforts without adding costs – such as developing alliances and referral partner relationships that help to introduce your business to more prospects.
  3. Resell complementary products to your existing clients. For example, shoe stores selling socks and office supply stores selling computer equipment.
  4. Offer incentives to clients for repeat business like a loyalty card or discount program.
  5. Raise your prices – after careful research.
  6. Invest in low-cost digital marketing strategies to increase awareness and lead generation opportunities – such as using social media postings (not ads).

Reduce Expenditures

Every business regardless of size needs a process to continually analyze expenses, which creep upon their own without much effort from entrepreneurial managers. To monitor expenses more carefully, consider:

  1. Start by tracking your expenditures as a percentage of sales and monitor monthly. Generally, your accounting software will calculate and print this on your profit and loss statement. Each month, track down deviations to determine the source of the issue.
  2. Monitor payroll closely and compare pay rates to your competitors and complementary businesses.
  3. Ensure that funds do not get routed frivolously into the “fun” parts of the business like marketing and office supplies. Emotional spending can be the undoing of a small business.
  4. Put items that comprise cost of goods sold out for bid every six months to a year and monitor your costs of goods regularly.
  5. Ask your accountant and banker for input and ideas on how other businesses are reducing expenditures.

Focus on EBITA

EBITA stands for earnings before interest, taxes and amortization. EBITA plus an owner’s compensation are generally added together to create the financial factor that drives your valuation. The higher the two numbers, the more the business is worth. To improve EBITA, consider:

  1. Paying the owner more year over year. Owner compensation should increase as revenues increase.
  2. Always look for ways to reduce taxes and using a professional tax advisor can generally produce positive tax savings.
  3. Keep your costs for financing the business (interest on credit lines and bank loans; credit card processing fees and bank charges) as low as possible. Shopping around for profitable banking relationships can be beneficial and your accountant can provide valuable advice on the best bank for you.
  4. Join a peer advisory program. Learning with and from other entrepreneurs will help you zero in quickly on how to read your financial statements and adjust your course of activity quickly.

Profit is also important to small business because it drives the cash available to run the business. (Most owners agree that ‘cash is king’ in their business.) All ideas that improve profit will lead to an improved cash position resulting in opportunities for further investment in the business. For example, a $1 million business that generates 7 per cent annual profit creates $70,000 annually to reinvest in equipment, new staff, marketing or floor space, for example, to grow.

Lastly, the bottom line for every business owner is to become comfortable reading and interpreting financial statements and acting on actual results. Accountants, financial advisors, small business consultants and training programs can all be valuable aids to improve your comfort with your accounting and finances.

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