THE BLOG
10/19/2016 09:55 am ET Updated Dec 06, 2017

How to Manage Your Profitability in Your Small Business

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A profitable small business is rarely an accident; you have to constantly work for new revenue.

Projecting profits on a financial statement in a business plan can make you feel hopeful as an entrepreneur. But your business plan is simply your hypothesis of what you thing will happen in the marketplace of your business. However, the only way to ever realize the profits you want is to mentally, and physically, exert your leadership while executing your sales plan. The following are several important factors I would encourage you to consider as you work to focus on the profitability of your business.

Invest Wisely

You have a very narrow margin of error in a small business. Therefore, making wise investment decisions is critical to your profitability. Whether hiring a new employee or acquiring equipment or assets for your company, always assess the potential return on investment. Before buying a building, furniture, resale products or supplies, consider the direct or indirect impact the investment has on your bottom-line.

Take a Hands-on Approach

It is easy to disengage when analyzing projected profits on a spreadsheet. To realize those sales projections, you have to get your hands dirty and put forth painstaking effort. Profit without hard work is a rarity. As a business owner you need the courage to make hard decisions to do what is necessary to reduce costs. Early stage business owners often take out the trash, do routine plumbing, fix doorknobs, clean and perform other laborious tasks until they realize they could be more profitable by focusing on the most high value activities. Paying someone to perform low value tasks can increase profits.

Obsess About Efficiency

Turn over every possible rock to improve the efficiency of your operations. I implore you to seek every possible opportunity to save even a few hundred dollars a month on such things as building expenses, equipment rentals, banking fees and operational supplies.

Efficiency isn't just about reducing how much you spend. I want to do things better or to find ways to get the same or greater value with a lower investment.

Source New Revenue

Controlling costs is just one part of the profit equation. In many cases, scaling your revenue up faster than you increase expenses is the real driver of optimized profits. Hiring a sales rep to articulate value and generate the greatest possible revenue from each customer helps improve short-term profits. More importantly, focusing on providing a quality customer experience leads to repeat business and plenty of word-of-mouth referrals. These factors help amplify long-term revenue. Another common way to increase revenue is by developing new products or attracting new customer segments for your existing offerings.

Evaluate your pricing strategies to enhance profits annually. Don't sell yourself short by not charging enough for your products and services. You may achieve a high volume, but do so inefficiently. Accurate pricing attracts buyers that recognize and pay for value. Regular discounting undercuts your assertion of value and minimizes gross margins.

To execute a business that achieves profits, maximizes revenue and minimizes costs, you must have discipline and focus. Conceive business strategies that allow you to get the most benefits from your people and resources, and set fair prices that represent the value of your solutions. Identify any opportunity to eliminate waste and control costs.

Get the Become Your Own Boss Workbook to learn more about achieving profits in your small business.

The article was originally published as Discovering the Path to Profitability in Your Small Business on www.succeedasyourownboss.com