They say ‘doing what makes you happy’ is the most important part of running a business. But a recent survey found that only around 40% of small business owners say they opened a business because they wanted to pursue their passion.
While there’s no denying that mental health and general happiness should not be counted out of your priorities when operating a business, we all know the real reason people start businesses.
To grow profits.
You could own a restaurant, a real estate company, an e-commerce business, or any other type of enterprise – but the goal will remain the same. Creating a profitable small business will take work regardless of the industry you’re in, but we’ll show you how to get it done with ease.
Find out what you can do to increase profits for your business just below!
Ensure you are growing a profitable business
What constitutes a profitable business is just making more money than you’re spending, right? It’s actually not that cut-and-dry.
To increase profits for your business, you need to carefully track the patterns in your finances, find where improvements can be made, adjust accordingly, and continue doing that indefinitely.
Here’s how to get started growing profits:
- First, make sure you’re keeping a business debt schedule where you keep track of your debts (and pay attention to your permanent working capital)
- Then, run the necessary equations to determine your gross profit and net profit
- Next, measure your profit margin (gross, operating, and net)
Note: We mentioned restaurants in the intro paragraph above. If you own a restaurant, you should be using a restaurant budget spreadsheet to keep earnings above expenditures and keep growing profits.
One of the major benefits of knowing your business’s different types of profit margins is that it opens up routes to increase profits. By measuring the three kinds of profit margins, you can find out which part of your business plan needs to be improved in order to grow profit.
Another perk of measuring profit margins is that you’ll be prepared if you ever choose to apply for business loans. Lenders also recognize the implications that a business’s profit margins have on that business’s ability to repay loans – so being prepared to present lenders with that information is a great advantage!
Note: One more equation you’ll need when you apply for a business loan is the Debt Service Coverage Ratio (DSCR). It’s essentially a ratio used to measure the amount of money that your business can afford to put towards paying off its debts. The higher your business’s DSCR, the more able your business is to make debt repayments.
One of the best ways to increase profits is to optimize your business’s expenses. Optimizing could mean reducing or eliminating expenses, but either way, you’ll be able to ensure that you have a profitable business by reevaluating your costs.
Examples of areas where you can optimize your business expenses include:
Of course, in order to develop a truly profitable small business, cutting costs simply won’t do the trick. You’ll also need to employ strategies to actively grow profits, which is what we cover next.
1. Your business plan should reflect growth in profits
Having a business plan that’s more than a list of wants is key to building a profitable small business. As tempting as it is to shape your business’s goals around your personal desires, it’s critical that you separate your professional life from your personal one.
What you need to do is lay out a business strategy that carefully outlines each stage of growth: what you plan to achieve, when you plan to achieve it by, how you intend on reaching those achievements, as well as back up plans in case you hit any speed bumps along the way.
Having a detailed plan will also help by giving you markers by which you can measure your progress.
2. Know your target audience
Knowing who your customers are is one thing, but understanding what their needs, wants, and pain points are should be your deeper goal. A profitable business is one that provides a product or service that fills a gap in the customers’ lives. The first step is, of course, finding those gaps.
Once you find out what it is that your target audience wants or needs, you’ll then need to make sure you have a team of experienced salespeople, marketers, and customer service pros who can help keep your business operating at a gold-level standard. Understanding your target audience will ultimately help you keep them coming back, contributing to increasing profit for your business.
3. Attract new customers
A profitable business will, more than likely, have its fair share of returning customers. But if the aim is to increase profits, you cannot rely solely on those ‘regulars’. You’ll need to find ways of bringing in new customers in order to scale up your business.
So, how can you attract new customers? One word: marketing.
With more than 30 million small businesses in the United States, it’s crucial to be unique if you want to bring in customers. Creative marketing strategies will help you maintain a steady stream of quality leads which will [ideally] result in growing profits. This is true for businesses in all different industries; see:
- E-commerce advertising
- Real-estate marketing
- Social media marketing
- Contractor marketing
- Dental marketing
Important: When it comes to marketing and attracting new customers, there are a number of metrics that you’ll want to pay mind to in order to measure profitability, including cost per acquisition (CPA).
Use the following equation to determine your business’s CPA
4. Grow your business
Growing your business isn’t exactly the same thing as increasing profits, though the two do tend to go hand-in-hand. Expanding your business can be done in various ways, including:
- Organizing your business’s operations and systems to get more done
- Opening a new location
- Offering new types of products or services
- Optimizing your business’s online presence
Each of those tactics can lead you towards developing a more profitable small business, though it should be noted that since the Coronavirus outbreak, strengthening your business’s online presence has become even more important.
More and more businesses are adding a focus on their online operations, leading to more competition and a greater need among existing online sellers for e-commerce business loans so that they can stay ahead of the race. If you already have an online store, you can use the additional funding to build your brand, start new marketing campaigns, get into multi-channel selling, and much more.
5. Business development to help you become a profitable small business
Business development refers to the pursuit of opportunities to increase profits through strategic means. Often times those ‘means’ may come at a monetary cost, but not always! You can use some of the following strategies to develop business and increase profits for little-to-no cost:
- Building new business partnerships
- Finding new markets to enter into
- Creating incentives for client referrals
- Attending networking events for your industry
- Learning from online resources (e.g. webinars, podcasts, YouTube channels)
With each business development tactic that you utilize, you’ll be helping to build an even more profitable business.
With e-commerce on the rise, you may be wondering if it’s time to take your business online. To help you decide, read this: How profitable are online retail stores?
Make sure to track your profit and expenses. And then, with these 5 ways to grow profits, you have a firm foundation that can help you get started off on the right foot.
Yes, it takes work to get it done, but building a profitable small business will prove to be worth your investment. Keep this article bookmarked for your future reference, and be sure to share it with other business owners who can use the information!