Improve Business Profitability

5th April 2018 Business advice Nicola Roby

Profitability is a reliable measurement of your business’ success. Profits are the very lifeblood of a business, fuelling growth, supporting the owners, providing for the employees, and ultimately determining the success or failure of your business.

Nicola Roby, Director at CHW Small Business Accountants in Bolton looks at ways to increase your business profits.

Gross profit is simply your sales income less direct costs, and essentially the way to maximise it is to expand sales income while controlling or reducing direct costs.

It is essential that you know your market and your competitors, have excellent knowledge of your product or service and that your service is high quality, with on time delivery and in accordance with specification.

You could consider means to increase sales such as promotions, leaflets, press releases, testimonials and adverts.

Whilst it might be tempting to reduce prices to boost sales you must be mindful that the increase sales may not be sufficient to cover the reduced gross profit margin.

Direct costs should be carefully controlled and constantly reviewed. Scrutinise material and labour costs to ensure you are getting the best possible prices and consider if your production methods are as effective as possible. Be prepared to be flexible and innovative in seeking more cost-effective solutions.

You may change suppliers to obtain better prices but the level of service you are receiving should be considered in conjunction with the cost. If your cash flow allows it you could negotiate earlier payment terms which may incentivise your supplier to discount their prices.

In order to maximise profitability, overhead costs should also be closely controlled. Business expenses should be kept to an absolute minimum and any additional overheads incurred should ideally be justified by an improvement to profits or efficiency.

Businesses should regularly review their gas, electricity, telephone and insurance costs for example. Even bank charges can often be reduced.

If you obtain assets using finance, obtain quotes from your suppliers, your bank, and a finance company. We can review quotes on your behalf to investigate if your finance costs are reasonable.

You should continually have a close eye on your income and expenditure. Accurate book keeping is essential and many business owners prefer to outsource these responsibilities to enable them to concentrate on running their business.

For further information on maximising profits within your small business or for help with book keeping, expenses reviews or management information contact Nicola Roby at CHW Small Business Accountants in Bolton on 01204 534031 or via our contact us page.

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