Greater Productivity for Greater Profit
We all know that to improve net profit we either increase our prices or decrease our costs, right? It’s almost a cliché, and one that just might prevent you from finding the real profit drains in your business.
And here’s the kicker – it could be you!
Net profit is simply revenue less expenses. It’s not surprising then that most profit maximisation strategies will focus on the financial profit drivers that directly affect both revenue and expenses.
Financial profit drivers can be easily calculated, measured, and compared to industry benchmarks (your accountant or business advisor can help you find these if you want to make the comparison yourself). Some financial profit drivers include:
- Sales Volume
- Variable Costs
- Fixed Costs
But what other profit drivers exist in your business? Non financial drivers are harder to measure and compare. They aren’t recorded in your accounting package and you probably won’t find any industry benchmarks for these - but they still have a very important impact on your bottom line.
Consider the following areas -
- Productivity & Innovation
- Product (or Service) Quality
- Employee Performance & Motivation
- Employee Skills and Training
- Client Satisfaction
- Business Values & Culture
It’s probably obvious that producing work faster and more efficiently, will improve quality, reduce errors, decrease business costs and free up capacity for growth.
If, at the same time, you are also able to improve client satisfaction, then you may see increases in sales volume, more repeat customers, and a perceived increase in the quality or value for your goods or services (this would be a good time to consider that increase in price!).
So you can see that non financial and financial profit drivers are closely linked. A successful profit maximisation strategy will examine all of these areas to find what is really eating into your profits – and how to tackle it. Now is the time to look objectively at what you do, how you do it, and how well you do it.
For small business owners that might mean looking closely at your own efforts. Are you trying to do too much yourself? There is an old saying which I’m sure you’ve heard before - “jack of all trades, master of none”. When it comes to maximising productivity this is a key concept. Being spread across too many areas will cause you to have less focus when it comes to the overall running of your business.
If you are looking at ways to improve your net profit, here are some tips to improve productivity and streamline your business.
- First - look at your business culture. Is it a positive, supportive culture that encourages team work and rewards achievement? A happy, motivated team is a productive team!
- Look at your processes to see if you can you make any improvements. Consider automating some of the more mundane tasks. For example, you can link your bank accounts to your business software to eliminate repetitive entry. You can also use automated debt collection software to send out customer reminders and follow ups.
- Look at how you (or your staff) are spending their time – is it the best use of resources?
- Look at the skills available inside the business. Consider additional training or outsourcing to maximise efficiency.
It might take some effort to start with, but improving productivity will certainly make your business life easier - and who could say no to increased profits?
Stephanie Lee is a Senior Bookkeeper and co-founder of Imprest Business Services. Stephanie is an MYOB Certified Consultant and ServiceM8 Partner. Imprest specialise in providing tailored administrative solutions for small businesses.
Telephone: 0424 299 882