There are three ways to make your business more profitable:
- Sell more
- Increase your prices
- Manage your costs/improve your cashflow
The last one is the least stressful to take action on. Not a lot of people know that a reduction in your costs or overheads can have the largest impact on your profitability (above increasing sales) because the savings go directly to your bottom line. I don’t have space here to show you a worked example, but if anyone’s interested or doesn’t believe me, let me know in the comments and I’ll happily send you my workings out!
There are two aspects you can work on:
- Managing your costs
- Managing the inflow of money
Managing your costs
Regularly review your expenditure
Are you paying for things that you don’t use or you could get cheaper elsewhere?
I check my expenditure annually and one year managed to save £500. Not a lot you may think but remember a saving off your costs goes straight to your bottom line and you can actually do a lot with an extra £500!
I have done things like swap my emailing tool to MailerLite which is free and works very well for my needs and I’ve cancelled subscriptions to things that seemed a good idea at the time, but then never used.
Save!
Be strict about saving money for your tax and VAT bills (if you are VAT registered).
I have a separate Tax/VAT account. At the end of every month when I’ve been paid, I calculate 20% VAT and 20% Tax and add the amount to the separate account.
This way, I don’t have sleepless nights worrying about how I will pay these bills.
It also acts as a mini savings account where you can build up a surplus of unspent VAT/tax.
I also have a separate ‘Profit’ account which isn’t linked to my business account. I know how much money I need to run my business each month and then only leave that amount in the main account. Anything in excess of that (after paying into my Tax/VAT account) goes to the profit account. Out of sight really is out of mind. If you can’t see the money in your account, then you’re much less likely to spend it.
It’s good to get into the discipline of this, even if some months it’s only a tenner. You’d be surprised at how quickly it builds up. And it then gives you options. It saved me during Covid as I’d built up enough reserves to see me through even if all my clients abandoned me. Luckily, they didn’t, but it was a reassuring buffer. Aim to have at least three months’ business running costs tucked away.
I have my business and tax accounts with Lloyds and my profit account with Starling which is super easy to set up.
Automate/systemise/outsource
Having efficient systems in place helps you provide a consistent service and can improve your margins by having repetitive tasks automated leaving you free to concentrate on more lucrative activities. Or outsource time-consuming, but simple tasks to someone else (a VA for example).
I wrote an article on the tools to help your business here
Managing the inflow of money
Below is a table with a list of things you can do that will improve your chances of getting paid on time and improve your cash flow.
If you haven’t got an online accounting package, such as Xero or QuickBooks, I highly recommend you treat yourself to one and link it to your bank accounts. They aren’t expensive and help you manage your finances and invoicing far better than juggling bits of paper or excel spreadsheets. And with the rollout of Making Tax Digital – you are going to need an online system to help comply.
These tips will help you maximise your money and as we like to say up north – every mickle makes a muckle (or in the words of Tesco – Every little helps)!