In a highly competitive market, it can be extremely difficult to either raise your sale prices or increase your sales volume dramatically. So if your business is struggling, what can you do to improve the profitability of your business?
If you consider how your profit is calculated (Profit = Income – Expenses) then the answer becomes clear. If you can’t increase your income, then you need to focus on reducing your expenses.
How can you do this? Here are 5 handy tips to help get your business back on track.
- Review workflows: before you just start randomly cutting costs, it is vital to understand exactly how your business operates. If it is a small business with few staff, you may be able to accomplish this yourself, but chances are you will need to consult with your managers and employees for larger organisations. Break down your work processes into all the steps involved in completing that particular process. For example, ‘buying stock’ can be broken down into steps such as, ‘requesting quotes’, ‘placing orders’, ‘arranging delivery’, ‘receiving delivery’, ‘stocking shelves’ and ‘updating inventory’. You can see from this very straightforward activity that your business probably has far more going on then you’ve really considered. Once you know exactly what you do, it’s time to move onto step two.
- Look for obvious inefficiencies: chances are that your review of workflows will turn up a few inefficiencies. In the example above, you may discover that you are paying staff to unload deliveries of stock when the delivery company may offer that as part of their service at no additional cost. Or your staff may be receiving goods and placing it in storage before transferring it to your retail space, when it might be possible to transfer incoming stock directly to the shelves. Not only would this reduce staff workload, it would also reduce the amount of storage space required. Eliminating these inefficiencies should show immediate results.
- Update and automate: the next step is to look at ways to automate your remaining processes. If the business has been operating for a long period, you probably have, old machinery, manual systems that could be automated (such as payroll software). Bear in mind that some of these updates may be expensive, so you will need to weigh that cost against the benefit before proceeding.
- Streamline your staff: having streamlined all your processes, you may now be faced with the difficult task of streamlining your workforce. This may involve reducing staff numbers, reducing the amount of hours that your staff are employed for; or it might allow you to use those available man-hours to undertake new business projects. The key is to maximise the value you get from your team.
- Engage and Upskill your staff: to ensure your staff remain engaged with the new processes, it is important to look at ways to involve and upskill them. This is particularly important if you have reduced staff numbers or hours, as there is likely to be fear and uncertainty for employees during this period.
By following these steps, you should be able to reduce your business expenses and increase your profits as a result!
By Jennifer Lowe
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