The concept of reinvesting profits is one that every entrepreneur should be intimately familiar with. Especially in your early years in business, the need to pay yourself can greatly impact your capacity to set aside some funds from your profits for reinvestment purposes.
While this is the reality for most growing entrepreneurs and businesses, you shouldn’t conform to it. The ideal situation is that you refrain as much as you can from siphoning money away from your business for personal use. That way, any profits that are generated early on can be reinvested back into the company in order to upgrade and grow the business.
5 Strategies for Reinvesting Profits for Business Growth
But how exactly should you go about reinvesting profits back into your business? To a great extent, it will depend on the needs of each individual business, but here are five reinvestment strategies that will be helpful to most small businesses.
1. Pay Off Debts
If your business is truly generating profits and you have the ability to allocate them where you please, paying off debts should almost always be the primary focus. It’s certainly not the most exciting option on the table. Also, unlike some of the other ideas we’ll explore, it doesn’t result in an immediate, visible impact on the company.
However, paying off debts helps your business become more financially independent, which ultimately provides you with the flexibility you need to grow and change with success.
In an article about strategies for reinvesting profits, Forbes contributor Sunday Steinkirchner articulates this idea by stating that “paying down debt will save you money in the long term, as well as help your credit score.” Steinkirchner was speaking from her own experience as a small business owner, and she also made the important distinction that paying off business debts is different than paying personal ones.
This may sound like an obvious assertion, but you may be surprised how easily the lines between personal and business can blur in the early days of ownership. Unless for some reason you happen to be on a particularly tight timeline with a personal loan, however, getting the business out of debt should be the first order of business.
2. Maximize Inventory Or Service Capability
Before we delve into this particular strategy for reinvesting profits, it should be noted that these ideas are not necessarily in any particular order. While paying off debts should almost always be the primary consideration, additional methods of reinvestment can be sorted and reordered (or omitted altogether) depending on your specific needs. That said, taking steps to boost inventory and/or service capability is usually a good idea to consider.
This, of course, depends on the nature of your business. If you’re selling products, maximizing your inventory means investing in additional manufacturing or faster production methods in order to have more products available. If your business sells a service, the equivalent idea could be any number of things designed to maximize your company’s ability to provide that service to a wider range of customers.
Either way, the idea is to use profits while you have them in order to equip your business for growth. Expanding a customer base and improving your company’s brand recognition are important steps and will be covered below. But if you expand your presence in the market before your business is capable of addressing the needs of additional clients or customers, you’re essentially setting up to disappoint.
You may raise concerns about supply and demand with regard to this idea. On a certain scale, it’s a valid conversation. For example, if Apple releases its upcoming smart watch in limited numbers, the public will clamor and wait eagerly for more inventory to arrive. This increases demand and ultimately could benefit Apple. However, things work differently when you’re starting out.
A contributor to the Houston Chronicle addressed the idea while pointing out that having sufficient inventory allows you to maintain prices and consistency in your business. In other words, if you’re short on inventory or service capability and attempting to meet financial goals, you may need to raise prices on what you do have, which is not a good habit to get into when you’re gathering a customer base.
3. Expand Your Brand
This is always one of the most important steps for a budding business, and one that requires a great deal of care, strategy, and attention. Particularly in today’s business culture, where a great deal of marketing is done online and through social media, many companies devote entire divisions of employees to brand exposure and marketing campaigns.
And frankly, it’s never too soon to start (unless, as mentioned, you have a finite ability to serve customers and cannot handle additional exposure just yet).
The trouble with this step is that a lot of small business owners and startup entrepreneurs aren’t sure where to begin. Anita Campbell, who is the founder and a frequent contributor to Small Business Trends, was quoted in AllBusiness.com’s Top 25 Small Business Tips as listing one of the first places she would start as social media presence.
Basically, this means taking steps to make it easier to find the business through increasing visibility through mentions and followings on Facebook, Twitter, etc.
To a lot of entrepreneurs, most of these may sound gibberish. And that’s where the spending comes in. As I mentioned previously, larger companies may hire entire divisions to be responsible for social media. But for a business just starting out, you may be shocked at the benefit of a single, part-time employee in these areas. Finding someone with experience in brand building can not only help get you off the ground with your marketing campaign, but educate you on how it’s done in the process.
4. Invest Externally
The idea of externally reinvesting profits may not necessarily seem to coincide with the term “reinvestment,” but that’s merely due to terminology. The basic concept here is an ordinary investment practice—putting funds behind a given stock, resource, etc. in the hopes of financial gains—on behalf of a business, rather than an individual.
Naturally there is inherent risk in establishing an investment portfolio for business capital, but this can be one creative way to go about generating a “rainy day fund.” Essentially, it’s a more strategic form of savings.
As for where to invest, it depends on your own preferences and the current market. But as an entrepreneur, you should be creative with your strategies for reinvesting profits and seek out alternative sources other than the usual option – stocks. As the saying goes, you shouldn’t put all your eggs in one basket, so diversify your reinvestment options.
Look for ways to invest with low fees and maximum security, ideally in a market with limited volatility but with a strong potential for long-term gains. One of such investment opportunities is the precious metal market, which historically operates with relatively low volatility, and does so on independent investment platforms.
Bullionvault, an online market with precious metal investment opportunities, describes its services as having a commission fee that’s the “lowest around” along with low storage fees and maximum security for client investments. As such, the company manages over $2 billion in precious metal for investors worldwide.
Again, this is not to say this specific strategy for reinvesting profits is necessarily right for your business, but it’s another secure external reinvestment opportunity to consider different from the usual stock market option. A profit reinvestment strategy like this can essentially function as a more productive savings account should you wish to put a small fraction of your profits to use.
5. Hire A CFO
This is a step that should be approached with extreme caution. However, let me put it this way: if the rest of this unusual article has come across as relatively complex, and the idea of managing financial resources seems daunting to you as a business owner, you may want to consider putting these matters in the hands of a paid, trusted employee.
That is basically the function of a CFO. While such a position is not always necessary or specifically defined in a smaller business, it’s worth considering in the right situation. TechCrunch wrote a very thorough article on the topic of when a startup should hire a CFO and made the important observation that the function and perception of the CFO role does change over time.
In fact, it’s more or less open to interpretation and structuring as you see fit, which means there is no right or wrong answer as to when you should make a hire. However, the article does make one very vital point that I would like to emphasize:
“If you’ve held off on hiring that finance guru until the moment you have an IPO or other milestone in your sights, you’ve waited too long.”
In short, don’t assume you have to have a huge business on your hands before hiring a finance expert.
Ultimately, this is a strategy for reinvesting profits that is designed to simplify and streamline future financial decisions. You may well see a notable increase in the attention and care you can devote to the aspects of the business you’re best at once you have someone else managing the money.
There truly are almost-limitless ways of reinvesting profits in your company. Every business has different needs, and there is no universal rule sheet for how to advance a company or get the most out of profits. But these core concepts and ideas can apply to a majority of small businesses while providing strategic ways to improve and expand with limited resources early on.
The most frequent answer I get is profit.
Profit is a short term view of assessing the health and wealth of a business. Unless you want to stay in business for the short term, don’t focus on profit alone. The most important word in business is not profit, but cash flow.
Yet, many entrepreneurs strongly believe that profit is the most important word in business. But according to management guru Peter Drucker, this shouldn’t be so. In his all time management classic book; ‘The Essential Drucker’, he states;
“Entrepreneurs starting new ventures are rarely unmindful of money; on the contrary, they tend to be greedy. They therefore focus on profits. But this is the wrong focus for a new venture, or rather, it should come last rather than first.
Cash flow, capital and control should be emphasized in the early stages. Without them, the profit figures are fiction –good for twelve to eighteen months, perhaps, after which they evaporate.
Growth has to be fed. In financial terms, this means adding financial resources rather than taking them out. Growth needs more cash and more capital. If the growing new venture shows a “profit”, it is a fiction: a bookkeeping entry put in only to balance the accounts…the healthier a new venture and the faster it grows, the more financial feeding it requires.”
Cash flow is the Most Important Word in Business
The understanding of cash flow management is key to the survival of any business. As my financial mentor Robert Kiyosaki always says, ‘the direction of your cash flow is everything’.
Successful entrepreneurs know that one of their key functions is to know how to manage the available resources and at the same time galvanize the available resources towards achieving the desired result.
This is what Peter Drucker above referred to as “feeding growth” and for growth to be fed, you need to understand cash flow.
What Is Cash flow?
Cash flow is the movement of money in and out of your business. It is the direction from which revenue is generated and the direction through which revenue is spent. Cash flow is the inflow and outflow of cash inside your business. The whole concept is hinged upon two words; income (receivables) and expenditure (payables).
Cash flow is the measure of cash that flow in and out of your business. Cash flow is the life wire of any business. What blood is to the body is what cash flow is to the business. When blood stops flowing into your system then you’re on your way to the mortuary. Cash flow is simply the life blood of any viable business.
Your responsibility as an entrepreneur is to ensure that more cash flows into your business than goes out of your business. It is the maintenance of a positive cash flow in your business that determines the financial health of your business.
This is the reason you must always ensure that more cash flow into your business than what’s going out of your business. When more cash flows in than goes out, you will have a positive cash flow. But when more cash flows out than comes in, you will have a negative cash flow.
Why is Cash flow so Important In Business?
1) To Stay Alive
What’s the resultant effect of failure of blood circulation in the system? It is death.
So when a business is not maintaining a positive cash flow, it can lead to the death of that business. While it is possible for your business to record loses and still survive, a profitable business with a negative cash flow can never survive. This is one of the major reasons most businesses never survive more than the first five years from inception.
While profit is calculated at the end of a particular business period, cash flow is ongoing. In a typical business, everyday money comes in and money goes out. You make and spend money in your business daily. Cash flow is how you determine whether your business is healthy and wealthy.
2) Without cash flow there can be no profit
Profit is made when products/services are sold. Until you sell, you can’t expect profit. But you need money to create what you sell. Ensuring the continuous availability of that money is the essence of cash flow. It is obvious that you can only spend after you earn, so it is important you earn more than you spend.
Businesses that are wealthy focus on improving their cash flow not just profitability. They focus on how fast they are turning their products/services into cash, how else they can improve on their operations to lower cost, and what else they can do to increase their sources of income.
If your business is slowly generating cash, you will struggle financially regardless of the profit you make.
3) Financial Analysis
Income (receivables): how frequent does money come in and how consistent is it?
Expenditure (payables): how frequent does money go out and how consistent is it?
You are running a wealthy and healthy business if you have more money coming in frequently and consistently than the money going out.
Businesses that often have money readily available are healthy and wealthy business. But a business that lacks liquid cash due to the infrequent and inconsistent inflow of income, such a business is unhealthy and struggling financially.
4) Financial Forecasts
Every business should know twelve months ahead of time how much cash it will need, when and for what purposes.
And when it comes to cash flow forecasting, there’s an old banker’s rule of thumb you should always apply.
- Income (receivables): always assume that expected incomes will come in 60 days later than as at when due.
- Expenditure: (payables): always assume that bills will have to be paid 60 days earlier than as at when due.
Entrepreneurship Demands Financial Management and a good starting point is cash flow management. The lack of adequate financial focus and of the right financial policies is, by contrast, the greatest threat to businesses. The more successful a business is, the more dangerous the lack of financial management.
Unusual Entrepreneurs are in business to make a profit by making a difference. Around here, we simply call it; changing the world and profiting from purpose.
Neither is an easy task. While you should always strive to create products/services that positively impact the life of your customers, you should never lose sight of the bottom-line –profits. The more profits you are able to make, the more impact you will eventually make.
So in this unusual article, we would be looking at one of the often overlooked ways of increasing profits in business; cutting costs, in this case, inventory cost.
5 Ways to Reduce Your Inventory Costs And Boost Your Profits
You’ve been successful at marketing your offerings to your customers, and now your business is growing. You’re in a great position now, but you’re running into the challenges of growth. These are good problems to have, but if you’re not careful and don’t plan ahead, you can sink your business’s profits with too much overhead.
When you think about ways to streamline your business, one of the most effective ways to cut overhead costs is to better manage your inventory. As was pointed in this unusual article about the 7 warning signs of a dying business, poor inventory management can lead to overstocking which eventually affects your profitability.
So to help you out, here are 5 ways to reduce your inventory costs and also increase your bottom-line:
1. Perform Disruption Analysis
The success of your business depends on other businesses to deliver goods and services on time. If partner businesses fail to perform their obligations for whatever reason, your business could take a big hit. How heavily do you rely on a given supplier? How would your business respond if that supplier went down?
If you rely on a single provider and disruptions occur, you can count on one of two things happening: You would have to pay exorbitantly to keep your customers satisfied or you would lose them to another provider.
The business partner relationship is one of the most crucial and complex in your supply chain, and should be carefully examined so that you can implement contingencies when disruptions occur. Audit your supply chain to identify the ways in which it can be disrupted.
2. Audit Your Inventory System
One of the biggest factors affecting your bottom line is your inventory. Not only do you have the costs for purchasing your inventory, you have the overhead of warehousing it. You need to keep enough products on hand to satisfy your clients and keep your sales volume high. Nothing sends a customer to another provider faster than the words, “Out of stock.”
But you have to be careful about stocking too much, and depending on the type of inventory you carry, you also have to be careful of its shelf life. Products that are hot today may be very cold tomorrow. The last thing you want in your warehouse is a bunch of inventory that no one is interested in anymore.
If your inventory isn’t complicated enough, add to it the market fluctuations you need to account for from seasonal and holiday trends. So, make sure you regularly audit your inventory so that you always have on hand the inventory you need.
3. Plan to Succeed
Now that you have analyzed your supply chain for possible disruptions and identified your inventory balance concerns, you can create a plan that mitigates your risks and optimizes your bottom line. Look at your suppliers, for example.
Even though one supplier may be more cost-effective than others, using multiple suppliers creates safety through redundancy. This way, if one supplier goes down, your entire operations don’t go down with it. Your approach to planning needs to include external variables, such as the ways in which government regulations may affect the way you or your business partners operate.
4. Regular Updates
You aren’t done! This process is ongoing. It requires constant re-evaluation. Over time, your suppliers will change and your inventory will expand. One of the biggest factors of successful businesses today is their ability to quickly react to the changes that occur in the market.
You don’t want to be the business that gets left behind because you assumed that the plans you’ve put in place won’t need to be changed. Make sure your business is ahead of the curve by consistently updating your disruption analysis, inventory balance audit, and your optimization plans.
5. Supply Chain Solutions
Believe it or not, you can streamline your costs and maximize your bottom line by adding a middleman. Professional athletes hire agents to broker their contracts. These agents get paid large commissions in return for their work.
Why don’t athletes just work their own deals? Because athletes are good at, well, athletics; and they might not be proficient at negotiating contracts. Agents aren’t just good at contract negotiation, they also very good at finding other opportunities for revenue, such as endorsement deals and product development. The athlete’s bottom line is a lot higher because of their “middleman.”
Think of your supply chain in the same way. You are very good at running your business, but the time you spend managing your supply chain is time you could be using to expand your business more rapidly in other ways.
Supply chain tracking providers are experts at managing and optimizing all of the elements I’ve been talking about, from managing your suppliers to keeping your supply chain up to date to everything in between. Supply chain solutions can also identify new ways of cutting costs that you might not be aware of. They truly are the agents in your corner.
About The Author
Nicole is a small business owner, and she enjoys the growth she receives from both the successes and the defeats she experiences from running her business. She enjoys writing about ways to more successfully run and manage a business.
When I created this site naijapreneur, it was my dream to make it the #1 go to business resource for unusual entrepreneurs. If I was going to make this dream a reality, then I couldn’t do it all by myself, I definitely needed some vision partners.
Over the 3 years that naijapreneur has been in existence, I have been searching for this vision partners who would come on board as naijapreneur faculty members to dish out unusual articles in their various fields of business expertise.
It’s taken a long time, but I never stopped searching and today I am glad to inform you that the search was all worth it. I’ve found one of the vision partners I need to become one of naijapreneur faculty members, her name is Folakemi Fadahunsi, she’s a financial strategy consultant and she will be dishing out unusual articles on business finance.
From now on, once or twice monthly, you will be hearing from her on naijapreneur. As you will soon learn, she’s a veteran in her field with over Twelve (12) years experience in auditing, risk management, financial & management accounting, and financial consulting. She has worked with high profile consulting organizations such as KPMG and was a former financial consultant to GlaxoSmithKline.
Without further ado, fellow unusual entrepreneur, here’s Folakemi’s first guest appearance on naijapreneur with this unusual article, enjoy!
How To Save Your Business From Self-Inflicted Financial Crisis
The importance of proper to the successful management of a small business cannot be overemphasized. As a matter of fact, without proper financial management processes and practices in place in your business, you are inevitably heading towards a self-inflicted financial crisis.
I often say this to my training participants:
‘When you pretend to do business without keeping proper records, it’s just a hobby, not a business.’
Why do I say that?
It’s only a matter of time before there will be problems in that business. The business will run out of cash. You will likely over-spend and on the wrong things too. You have absolutely no realistic information to make any meaningful decision, so anything and everything can easily go wrong.
Besides, who will take you seriously? No bank, investor, supplier or even customers will take you seriously. (Some corporate customers ask for Tax Clearance Certificate, Cash Flow Statement etc, before they sign you up as a supplier or service provider). So, are you really running a business or simply practicing a hobby?
Need I say more?
Ok, here’s more!
The Business Importance Of Keeping Good Financial Records
Here are 3 key importances of keeping good records;
1. Price your product accurately:
Small business owners often ask me how much I think they should charge for their products/services. This is especially common to service providers, especially consultants. The easy answer is, let me have a look at your records so far, with answers to a few other questions here and there I can give you a fair idea of how much it costs you to deliver that service.
And if you know how much it costs to deliver the product/service, then you can decide on how much you should be charging your customers. The typical answer I get is:
‘Actually, you know, what I’m really trying to say is that, I didn’t really record everything I spent,… but I can tell you, it’s all in my head.’
2. Know if you’re making or losing money:
In general and on specific products: Can you in all sincerity tell me how much profit or loss you have made in the last six (6) months? Do you know if you are making profit on only one product and making losses on all the others? Do you know if only two of your customers are contributing 80% of your sales?
Most small business owners cannot. It is really alarming. Success in business is a choice not an accident. Success is deliberate. Deliberate record keeping contributes to deliberate business success. If you truly want to succeed in business, there are no two ways about it, it’s either you keep records or you keep records.
Small businesses owners make a lot of costly mistakes all year round, some of which can be avoided with proper book keeping and management accounting. Consider a business that was set up to supply bottled water and dispenser water to offices in Victoria Island Lagos. The business owner has assumed that since he supplies more of the dispenser water, then most of his profits should come from it.
However a close analysis of the records could show that there is actually more profit from the regular bottled water, possibly because the profit margin is higher. If he decides to stop supplying the regular bottled water he will be making a wrong decision. The business may not be financially sustainable. All because of a wrong decision, this can be avoided.
3. Know your cash flow — short and long term:
Proper record keeping is required in order to prepare realistic cash flow forecasts. See ‘How to manage Your Cash Flow.
- Work with bankers: You want a bank to finance your business but you don’t have any records? Don’t embarrass yourself. You need to get your records straight.
- Tax purposes: how do you ensure that you are not over-charged in terms of taxes? Keep a proper record, that’s your only proof of what has been happening in your business.
Financial Record Keeping Made Easy For Entrepreneurs
Follow these two easy steps to keeping good records;
Record money received from Sales (Income):
The easiest way to do this is to use two (2) forms:
- Invoice: Issue an invoice to every customer that buys from you, whether they have paid or not.
- Receipt: Issue a receipt to every customer that pays, for the exact amount that they have paid
If you follow these two steps you would be able to track how much sales you have made, how much money you have received, who owes you and how much they owe.
2. Record money spent (expenses):
All money going out of your business should be recorded as follows:
- Cheque Payment Voucher: Use this to record all expenses you pay for with a cheque, including salaries and withdrawals by the business owner. This assumes that you have a bank account for your business.
- Petty Cash Voucher: Use this to record all expenses you pay for by cash.
To every business owner or entrepreneur, having good financial management skills is not only going to save your business from self-inflicted financial crisis, but can also prove to become a strong competitive advantage. The tips offered above are just a tip of the iceberg, there’s still more to keeping good records and having strong financial management practices in your business.
So what’s my candid advice?
Register for my financial management training for entrepreneurs which is coming up on Wednesday the 26th of June, 2013. It’s a power-packed session for business owners where I will be digging in on how to use strong financial management practices to grow your business. To learn more about the training, click here.
Tito’s Note… Exclusive discount PLUS Unusual bonus for ONLY naijapreneur subscribers!
I have been able to strike an exclusive deal for you with Folakemi, the financial management training for entrepreneurs normally costs N25,000 [$157].
Now here’s the interesting part, for all naijapreneur subscribers, you can attend this training for N15,000 [$94] –that’s an exclusive discount of 40%!
And that’s not all, in addition, you also get a one-on-one financial consulting session for 1hour with Folakemi where you can discuss with her the financial challenges you are facing in your business!
The training comes up next week Wednesday, so you have less than 10 days to claim this extra-ordinary offer. Here’s What To Do Next….click here to register!
This is part of my upcoming birthday presents to you, one gone, two more to go, stay tuned!
About the Author
Folakemi Fadahunsi is a financial strategy consultant that’s passionate about helping entrepreneurs develop strong financial processes and practices that will enable them access funding. She is the principal consultant at Purssion Limited.
Continuing our discussion on cracking the profitability code, in this unusual article, I will be sharing some very simple tips you can immediately put to use in your business to increase profitability.
It doesn’t matter whether you are a small startup or an international corporation; every business is looking to grow its profits.
So when it comes to increasing your profitability in business, after considering both the universal laws of profitability and the peculiar elements of profitability, there are two simple options open to you;
1. Increase Revenue [sell more]:
There are several ways to increase revenues. To apply this profit maximization option, here are four things you can do;
- Firstly, increase the quantity of sales, for example by better marketing the product or improving quality. Analyze where money is majorly coming in from and focus on making more sales in those product/service categories.
- Secondly, up-sell to existing customers, for example by persuading them to buy enhanced services or accessories.
- Thirdly, diversify into selling a wider range of products.
- Fourthly, revise pricing to produce a more efficient balance of the number of sales and the revenue from each sale.
2. Decrease Expenses [cut costs]:
There are also several ways to cut costs. To apply this profit maximization option, here are four things you can do;
- Firstly, analyze where money is being spent. Overhead is one of the biggest categories of expenses that business owners face.
- Secondly, negotiate cheaper prices for supplies, particularly when buying in bulk.
- Thirdly, make the manufacturing process more efficient, for example by breaking it down into individual tasks and setting up a production line system. Improving your business processes can reduce wastages financially. Always adopt time saving and production boosting technologies.
- Fourthly, buy equipment you currently lease, or lease the ones you currently need to buy or do a hire purchase. Assessing costs here may require taking a long-term view.
5 More Easy Ways To Increase Your Business’ Profitability
The following 5 simple tips cover both profitability options discussed above depending on the peculiarity of your business situation, enjoy!
One of the biggest sources of expenditure for businesses is human resources. Because no entrepreneur can do all that is required to move their business forward, there’s always a need for talented people in every company, big or small. But for majority of small business owners, you don’t have to employ all the talents you need on full time.
No matter what type of business you are in, you probably have work that can be outsourced for a minimal fee. Look for strategic partners who can offer certain freelance or outsourcing services on a pay-as-you-go basis. Design projects, press releases and website content are all things you could stop doing in-house. Focus your full-time employees on revenue-building projects and send simple tasks out for freelancers to complete.
By so doing, this will reduce your overhead expenses and increase your profitability!
2. Raise Your Prices
One of the easiest ways to maximize your profits is to increase your prices. Having a good business is not all about offering the lowest price. Sure, it’s what some people may be looking for, but for many, quality and customer service are equally important.
If you have a superior product, don’t shy away from charging a superior price. You may lose a few customers at first, but studies show they are likely to return for a quality product or valuable customer service options.
I discussed more about this profitability option in this unusual article; COMPETITIVE STRATEGY: How To Win The PRICE War
Also, review your cost structure. Make sure you have a sufficient markup on your goods. When the cost of raw materials and related costs increase, the additional costs need to be included in the selling price. Reviewing your cost structure on a regular basis will help you keep track of costs that are on the rise before the cost is too great to completely include in your selling price.
3. Find A New Energy Supplier
Energy is an expense that every company has to deal with. Trust me; I know how much I spend on power monthly. It is one of the key areas where recurring expenses flow; so if you haven’t shopped around for energy rates lately, it could be costing you.
When we ran our cybercafé business, energy or power was one of the key areas that depleted our revenues. In our first year alone, we spent over 1 million naira on energy! Just imagine if some portion of that cost could be saved and converted into profits for the company?
In developed countries and deregulated areas, businesses are able to choose their own energy suppliers, such as Reliant Energy. Many suppliers offer competitively low rates that might be better than what you’re currently paying. And if you are looking to make your business more sustainable, many suppliers offer green energy made from wind and solar resources.
The most important takeaway is that even a penny difference in energy prices can have a significant effect on your bottom line!
4. Borrow Best Practices From Others
Your business model does not have to reinvent the wheel; you can always copy best practices from others, especially from outside your industry. Find out what’s working for your competition or similar companies and implement it in your business. There is nothing wrong with having a business model that works well, even if it is similar to another company.
Just find a way to differentiate your offering [product/service]. If a competitor is excelling with customer engagement, mimic it. If it is using different technology, look into it. Don’t be afraid to take others’ ideas and strategically mold them to fit your company.
Take a look at this unusual article for more insight; Competitive Intelligence: 12 Sure Fire Ways To Strip Your Competitions Naked!
5. Educate Potential Customers
If people don’t know about your awesome company, then you may have a problem increasing profits. In the age of digital media, it’s just silly not to have an online presence. Create a website, join Facebook and blog about your industry. Let everyone know about your company and how great your product is.
Take it one step further by creating advertisements for your company. Choose mediums that your ideal customer would be using. TV, radio, print and online are just a few of the many places you can advertise. Once you have gained attention, work on engaging your customers. Create relationships that will keep them coming back for more.
Over To You
What other profit maximizing options have you applied in your business?
Participate by leaving your comments below, thanks!
I am yet to come across any entrepreneur who seems to have had enough when it comes to making money through their business. Especially if you are an unusual entrepreneur [purpose-driven], you realize that the more money you make, the more purpose you can fulfill.
So, making money in business is not a luxury only a few should enjoy, but a necessity for every unusual entrepreneur.
But wanting more money in your business is not enough. The real questions is; “how do you make that ‘want’ a reality?” To answer this question has been the age long quest of every entrepreneur, business owner, manager as well as several business consultants.
The entrepreneurs or companies who succeed in business are those who have cracked the profitability code –a set of different elements, laws and principles that must be strategically applied.
Many entrepreneurs and businesses still struggle with profitability because they are missing one or more elements of this code or they are wrongly applying them. Knowing them and rightfully applying them is what this unusual article is about.
Let’s get started!
Cracking The Profitability Code –The Key To Making More Money In Business!
If you want to make more money in your business, there are two sides to cracking the profitability code that you must begin to focus on. There are universal laws/principles you must follow and there are peculiar factors you must address.
The universal laws/principles of profitability are;
The peculiar factors that determine the profitability of your business are;
- Business factors
- Environmental factors
- Personal factors
Both sides of the profitability code must be rightfully aligned and strategically applied before you can unlock the profit potentials of your business. In most cases, the problem is not from the universal elements of the profitability code. Rather, the problem often stems from the peculiar elements of the profitability code. Why?
Because laws are laws, they rarely change. The only problem with universal laws is this; ignorance of their existence or poor application of them. But the challenge of cracking the profitability code greatly lies with you the entrepreneur, the nature of your business and the environment in which your business operates. These peculiar elements are what you need to really crack in order to make more money in your business.
But let’s tackle the universal elements of the profitability code first.
The Universal Principles Of Profitability
What are those universal principles that guarantee profitability in business?
The first universal law of profitability is value. And it states; you will only GET as much as you GIVE.
It’s such a simple logic; you want money, so what are you going to give in exchange for it? Since money doesn’t grow on trees, how do you intend to get it without stealing? The answer is simple; provide something of value. Value is the solution you provide through your business, it could be a product or service or a combination of both. Without value, you are not qualified for profitability.
I have already written an unusual article about this law of profitability, so I won’t dwell much on it here. It’s called the origin of profits, click on the link to read it.
The second universal law of profitability is marketing. And it states; your business will only go as far as your message goes.
Isn’t it quite obvious? The more people who get to know, like and trust the value your business provides, the more of them will likely buy from you. And the less people who get to know, like and trust the value your business provides, the less of them will buy from you.
The marketing that works is all about influence. So to apply the principle of marketing to your business, you have to focus on these 3 key areas;
- The message
- The medium
- The messenger
I have already written several unusual articles about this law of profitability, so I won’t dwell much on it here. You can learn more by clicking here to read more unusual articles on marketing.
The third universal law of profitability is culture. And it states; every company is the sum of all the people involved, without unifying ideologies a company is a mob.
Come to think of it; imagine if every person involved in your business was going about his/her own agenda, would your company ever make a dime? Obviously not!
Do your employees know why your company exists? Does your business have a big picture? Do they believe in the value [products/services] your company offers to the market? Do they all align to your profitability goals? Do they know and uphold the values the company stands for?
So culture is how you unify the efforts of everyone involved in your business towards the achieving profitability. Culture is the soul of your company. It is the thread that binds everything and everyone together. It influences behavior, defines expectations and inspires teamwork. Without culture, there’s no company, there’s only a mob!
How Does Culture Impact Profitability?
Culture impacts the profitability of your business in the following key areas;
A company with a positive culture will serve customers better than one with a negative culture. And since your profitability rests in the hands of your customers, poorly attending to them can negatively impact your bottom-line.
Culture is contagious and this is why it must be taken seriously otherwise a company can cease to exist. Value as was discussed above is the first universal law of profitability, it is the product/service your company offers to the market. The culture of your company will determine the quality of the products/service it creates. Companies with great cultures create great products/services. And great products/services generate high profits.
The greatest impact of culture on profitability is synergy. There is nothing as rewarding as a group of people working together to create something bigger than they could have individually achieved. Culture is the fluid that makes high performing companies deliver excellence. When everyone in your organization knows what to do, why it matters and how to do it, magic happens. And customers love a company where magic happens!
The Peculiar Elements Of Profitability
What are the peculiar factors that determine your company’s profitability?
The first peculiar element of profitability is the nature of business you are into. Take it or leave it, some businesses are more profitable than the other. This is why the kind of business you go into is equally important in determining how profitable or not your company will become. So profitability is peculiar to the kind of business you do.
Every business has the potential to be profitable, but the degree or extent to how profitable a business can become is peculiar to the nature of business one is into. Some businesses have irregular revenue or sales cycle while some businesses have regular revenue or sales cycles. A business with regular sales cycle is often more profitable than one with irregular sales cycles.
No wonder cashflow is considered the most important word in finance. It is the relationship between revenue and expenses within a given period. If the frequency of expenses exceeds the frequency of revenue, then you have a negative cashflow.
Businesses with irregular sales cycles are more prone to negative cashflows because they have a longer cycle time. You have to live on your last revenue before the next and in most cases you might end up spending your last revenue while pursuing the next sales. But businesses with regular sales cycle have shorter cycle time and this means before you run out of cash, another sale has been made. In other words, it is harder to run out of cash if you own businesses with regular sales cycles than those with irregular sales cycles.
So the peculiar question you need to answer to be profitable in your business is this; “how often do you make a sale?” Or “what is the average timeline or gap between your previous sales and the next?” The longer the timeline or gap, the more prone to negative cashflow and the less profitable your business becomes. The bitter truth is this; businesses with a higher degree of repeat purchases/sales tend to be more profitable than those with lower degree of repeat purchases/sales.
The second peculiar element that determines your company’s profitability is the environment in which your business is situated. This is when the saying “location matters” holds true. The environment in which your business is located defines a lot about your profitability potentials.
It determines the kind of business you will venture into, it determines the quality level of the products/services you will offer, it determines the price at which you will sell them, it determines the caliber of workers you will employ. All of these factors will either improve or hinder your profitability as a company.
The smart choice is to always analyze the environment before going into business. Check for profitability pointers and killers such as; the standard of living, the prevailing culture, the demography, the income level, the condition of other existing competitions, the religion, level of education, government legislations and many more.
The more receptive the environment is to the kind of value [product/service] you offer, the more profitable your business becomes. The less receptive the environment is to the kind of value you offer, the less profitable your business becomes.
The third peculiar element that determines your company’s profitability is you the entrepreneur. There are certain individual traits and habits that are peculiar to entrepreneurs that can improve or impede your company’s odd of becoming profitable.
As a business rule, the more knowledgeable you are as an entrepreneur about the kind of business you venture into, the more you increase your odds of becoming profitable. So having more experience, knowledge, passion and skills in a particular business can contribute to your bottom-line positively.
In business, there is no way you can exclude the impact and role of the entrepreneur in determining how profitable the company becomes. You are the driver of your business and to a large extent it will only go as far as your eyes can see and your legs can take it.
None of all the things listed above will happen by themselves, it takes you the entrepreneur to make them happen. It is still up to you to determine if your business will be profitable or not through the choices you make and the actions you take as the leader of your company. This is why you need to be up and doing; commit to personal development —learn more, do more and achieve more!
How are you cracking the profitability code in your business?
What specific steps are you taking to make more money in your business?
To what extent has the universal laws of profitability helped or hindered your profitability as a company?
To what extent has the peculiar elements of profitability aided or hindered your profitability as a company?
Share your comments, thoughts and questions below to add more value to the conversation. Thanks in advance, really looking forward to learn from your own side of the story!