How to Increase Profits without Increasing Sales
I preach about increasing profit all of the time, but not always about increasing sales. When you hear the words “more profit,” your mind automatically equates that to more sales a lot of the time. So while we love an increase in sales, too much growth too quickly and at the wrong time can be unstable.
So how can you get that financial freedom without boosting sales? We want to keep your profit margins tight while still increasing the revenue there. And it is really within those margins that lies the key. Being on top of your numbers is so important in growing your business or maintaining your profits. You need a solid financial foundation for your business before you start increasing your sales. It's common for us as business owners to think that more sales is always a good thing. But it's smarter to have a handle on what's going on inside your business before you start expanding and experiencing rapid growth. Instead, there are four key areas to focus on to increase revenue.
Be Involved In Your Financial Statements
Read and understand your finances. The most commonly used financial statement is the income statement, also known as the Profit and Loss (P&L) report. You should also be looking at your balance sheet, where there is the statement of cash flow. And look at a cash management system, so that when you read and understand what is going on in your profit and loss statement, you're actually understanding what makes your business profitable.
If you're monitoring your expenses, you have a good idea of what you need to spend to generate that new revenue. It also helps you identify money leaks before they become big problems. When your books are current, you can see where you're spending money - and when you’re spending too much on something. Keeping current records lets you monitor your spend and manage your budget accordingly.
Create A Business Financial Plan
You should have a business financial plan that is based on your Profit and Loss statement. It helps you to really, truly know your profit margins and know when to adjust accordingly because, as we all know, things in business can change continuously. A plan helps you prioritize which profit margins you want to keep in your company. And when you set up your books to count for each line of service or product you offer, you can see when your profit margins are falling short and you can correct them immediately because you're getting that feedback. Ultimately, a financial plan is creating a 12-month operating forecast. So you are planning from where your business is now to where you want to take your business in one year.
Monitor Progress v. Plan
This is where the proof is in the pudding. By comparing goals to actual results, you are going to see what you actually did for a certain month vs. what you had planned for that month. And you're going to look at the variances. If the variances are positive and made more money than you had expected, then that's a good thing. And you'll want to know what's going on in your business so you can capitalize on that positive result. On the other hand, if you’ve lost money that month, then you can do the analysis needed to understand what happened. Use that data to correct any issues early on so you minimize money leaks in your business. Monitoring your progress each month keeps you on top of your finances and able to adjust things to better meet your goals.
Stay On Top Of Cash Management
Ultimately, cash flow is one of the most important areas that is keeping you in business. At the end of the day, it’s your ability to pay the bills that keeps you in business. So you want to have a clear insight into how much money is coming in and how much is flowing out. According to a US Bank study, 82% of businesses fail by poor cash management. That’s a frighteningly high statistic for something that can so easily be rectified. When your books are set up with a good system, understanding your cash flow position is as simple as running a report. So make sure to be running cash flow reports in your accounting software and keep an overarching eye on things.
How will you put this all into practice? What opportunities do you have to shore up revenue in your own business? Register for the free Path to Profitability masterclass today to learn how!
