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Ensuring the Profitability of Small Businesses

Ensuring the Profitability of Small Businesses

Profitability is the keyword of all businesses. Uncertain market conditions, demand-supply imbalances and a lot more economic and non-economic factors pose huge challenges in the profit-earning capacity of a business.

The following checkpoints will serve as a good guide in the daily conduct of your business and help you meet the overall goal of profitability:

Structured Goals: It is not enough to have a business dream. Once you are out to turn it into reality, you must:

o Identify specific and realistic objectives
o Assign a deadline to all your objectives
o Periodically measure your actual performance against the laid down objectives.
o In the event of a failure to achieve any particular objective, judiciously choose an alternative plan.

Study your Numbers: Numbers from your financial statements say the whole story. Therefore, make it a practise, to study and review them at periodic intervals. Profitability is a function of your revenue and costs. A close analysis of the various heads will show you scope for improvement in areas such as overheads, collections, etc.

Note your Key Performance Indicators: Use key performance indicators (KPIs) to analyse your strengths and weaknesses – e.g. rising costs or falling sales.

Employee Growth & Morale: Your staff is the backbone of your business. Ensure that you hire employees with the right qualification, experience and skills. Also, ensure that you have a well-charted job description and that you pay them adequately. Satisfied and happy employees work with greater dedication, save you from re-hiring and training costs, thereby directly helping your bottom-line.

Customer is King : Treat him like one: Analyze customers’ purchasing history and anticipate their requirements in advance of their order. You can also use what you already know about regular customers’ buying records to sell them additional products or services. If they are already happy, it is more likely that they will be open to purchasing tailored products or add-ons. Also ensure that your most faithful customers feel valued by giving them periodic discounts and other loyalty-based incentives. Meanwhile, requesting regular feedback may help them feel involved, while also giving you fodder for improvement.

Marketing Magic: A well-charted out marketing strategy can significantly increase your profitability. Evaluate judiciously the following schemes–

o Increase your marketing efforts to locate new customers.
o Moving into new market areas.
o Differentiate yourself from your competitors by keeping your unique selling point.
o Use existing customer referrals to increase your base.

Cost and Operations Efficiency: World over, efficiency is the buzzword. Whether in good times or bad, nothing improves profitability better than being effective, both in costs and operations. Some ways to achieve this is by –

o Maintaining adequate levels of inventory thereby reducing storage, handling and insurance costs.
o Streamlining operations and maximizing the use of facilities and resources.
o Keeping a close eye on receivables so that cash-flow is not impacted
o Making provisions for big payments so that they don’t leave a dent on your profitability.
o Re-negotiating prices, consolidating purchases, using buying groups and making a longer-term commitment to a single supplier or even switching suppliers can reduce costs.

Profitability of a business is an overall goal, and all the above factors collectively help you achieve it. Take care not to emphasis one at the cost of the others — equal importance to every aspect of running your business will ensure that you are profitable. And stay that way!!!

Ensuring the Profitability of Small Businesses


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