profitgraph2

How to Turn 1% Into Double Digit Profit Growth

When it comes to profit growth or improving the bottom line, business owners often look for the silver bullet. The one big innovation or idea that will turn a business around and make people notice.

Innovation is important in all areas of your business, but often small improvements over time can make a big difference on the bottom line. In fact, a mere 1% improvement in revenue, cost of goods sold and expenses can produce double-digit profit growth!

The Power of 1%

Here’s a simple example to demonstrate the Power of 1-1-1

Revenue:  With a 1% increase, revenue goes from $500,000 to $505,000

COGS:  With a 1% reduction, cost of goods sold goes from $300,000 to $297,000

Expenses:  With a 1% reduction, expenses go from $160,000 to $158,400

The result, Net Profit goes from $ 40,000 to $49,600.  An increase of $9,600 or 24%!

Check it out with YOUR numbers to see for yourself.

So now ask yourself “Do I have what it takes to achieve a 1% improvement in these areas”? Absolutely! Can you do more? Probably. The key is to start – so set a goal. By focusing your efforts in these areas, you too can make progress 1% at a time.

Of course, a goal without actions won’t do much to get you there. So here are some things to consider as you plan your attack:

Revenue / Sales: There are hundreds of ways to grow sales. While generating more leads is an obvious one, here are a few that are often overlooked. You can improve revenue by improving your sales conversion rates, get customers to spend more or buy more often or expand your products or services. Need some ideas, check out 155+ Profit Building Ideas

Cost of Sales or Goods Sold: Based on experience with hundreds of small business owners, this area offers a lot of opportunity for profit improvement. The costs included in the cost of sales or goods sold will vary based on your type of business. These are variable – and link directly to sales levels. Examples of costs include inventory, incoming freight, direct labor (associated with service delivery or production), raw materials, service related suppliers and sub-contractors.

So how can you improve this area? Consider some of the following: improve labor efficiency by eliminating waste, renegotiate prices with key suppliers and vendors, outsource or utilize sub-contractors, improve scheduling, plan purchases to get volume pricing, and eliminate rejects or reworks.

Expenses / Overhead: These are relatively fixed and include everything from wages and benefits to marketing and rent. In today’s economy, many have focused on trimming the fat – but the key is to do so without impacting your ability to grow and deliver on your promise to customers.

Here’s a few things to consider: re-evaluate staffing levels to align with sales and service requirements, re-evaluate benefits, develop compensation model that includes pay-for-performance elements (not just guaranteed wages), evaluate outsource options or leasing, re-quote service contracts and insurance, renegotiate rent or relocate where appropriate, track marketing to improve ROI, and establish a budget – and live with it.

Small improvements in all areas have a compounding effect on your bottom line. They build on each other. All it takes is a clear focus, some simple proven strategies and a commitment to do it.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

create successful business

10 Ways To Create a Successful Business

When it comes to business, there are plenty of stats on business failures and why this happens. Knowing the potential obstacles certainly provides you with information that can help you avoid the pitfalls.  But since our brain works better with positive reinforcement, we’ll focus on what you can and should do to create a successful business.

When we consider business success there are two fundamentals that are obvious, so I have not included them in the list.  First, the business must have working capital so it doesn’t run out of cash and, second, it must have products or services that others want to buy at a price that produces a profit for the business.

With that said, there are certain things that stand out among successful businesses.  Based on my experience with hundreds of small business owners, here is my list of things to consider – to help you create a successful small business.

Have an Actionable Plan.  Writing down WHAT you want to achieve (goals) and HOW you will get there (actions or tactics) is a must.  As a small business owner, you wear a lot of hats and have a lot to do.  Without a roadmap, everything looks like a priority and the important stuff ends up on the back burner.  It doesn’t need to be long and fancy.  It simply needs to be clear and actionable.   Successful businesses have written goals with associated actions to get there.  My Ultimate Guide to Planning may help.

Think Long-Term Value.  It’s natural to look for ways to save money.  While it should be a priority in both good and bad times, you need to look at the big picture.  Are you creating short-term profit at the expense of long-term value?

Here’s an example to demonstrate this point.  When business got tough, a business owner laid off staff.  As the business recovered, he made a decision to fill some of his staffing needs with temporary help to save money.  Over the next year, service levels began to decline, customers left and his reputation took a hit.  He saved money short-term but it had long-term implications.  Think long-term value when making critical decisions for your business.

Focus on Results.  As a business, you invest a lot of resources in activities – from marketing and sales to service and team building.  But do you track or monitor the results to see what works and make adjustments based on what you learn?  Activities that don’t produce the desired outcome, like more sales, efficiency or profit, cost you time and money.  So whether you are trying a new marketing tactic, hiring a new employee or changing up your service delivery procedures, be clear on your desired outcome and monitor the actual results.  Your findings will determine if you keep doing it, make some tweaks or stop doing it.

Be a Lifetime Learner.  Entrepreneurs by nature tend to be self-confident.  Would you start a business if you didn’t believe in yourself and your abilities?  But none of us are experts at everything and sometimes we just don’t know what we don’t know.  Successful owners understand this.  They recognize their strengths and are willing to teach others what they know.  But they are equally willing to learn from others – employees, customers, business associates and mentors.  They are open to new ideas, willing to try new things and gladly give credit to others along the way.

Speak the Language of Business.  You don’t need to be an accountant or a math guru — but you do need to understand the numbers that drive your business.  Whether you do it yourself or hire a bookkeeper, Quick Books makes it easy for any small business to KNOW what is going on with your sales, profit, and cash flow at any time.  Have an accountant to help with tax preparation and strategic planning, but take ownership of learning and understanding your financials.  In doing so, you will uncover opportunities and make better business decisions.

Leverage Your Business.  You didn’t start a business to become a slave to it – yet many small business owners end up working lots of hours with little reward.  It’s important to simplify and get more done with a lot less effort.  The key here, of course, is systems! Documenting procedures and systematizing routine and critical tasks makes it easy to do or delegate what you do consistently, effectively and efficiently – so you get more done and make more money.  Systems also make life easier for you, the business owner, your team and your customers! They may not be glitzy, but they sure contribute a lot to the bottom line! My Ultimate Systems Guide may help.

Niche: Think Small to Grow Big.  Intuitively, most owners know that trying to reach and serve everyone is a costly mistake.   Today customers are more cautious about spending and often have more choices. To be effective, your marketing must be compelling to potential buyers.  How do your products or services address their goals, desires, and problems?  This is difficult to answer when you are trying to ‘talk’ to everyone.  But when you employ a niche marketing strategy – think small to grow big – it’s easier, more effective and ultimately more profitable!

Here’s where to start: (a) pick a product or service – most businesses have more than one (b) identify the niche or ideal customer for your product or service; (c) identify the problems experienced by those customers and (d) communicate the solutions your products or services offer for the problems they experience.  If you are not sure what the problems are, ask.

Create Profitable Growth.  New business is a priority for most companies.  But revenue growth will not guarantee you put more money in your wallet or bank account. Products and customers are not created equal.  If new sales are coming from low margin or unprofitable customers or products, profit can erode despite the top line growth.  If you can’t make a customer or product profitable, be willing to let them go!

Give Your Products a Facelift.  When was the last time you actually took a look at your products and services – beyond price?  The needs of customers change over time, technology and market conditions change too.   Are your products or services keeping pace?  Do you have opportunities to expand your offerings or reach new segments with minor adjustments?  Are value-adds still valuable to the customers you serve or are you simply adding cost without a return?  Which products or services are most profitable; which are unprofitable?   Successful businesses routinely make adjustments – they add, delete or modify to reach new customers and keep current ones coming back.

Create Raving Fans.  Getting new customers is important, but repeat business is the key to sustainable growth and profit.  Go beyond satisfying customers.  Make it your mission to create raving fans, who buy and spend more and tell others how wonderful you are.

It starts with their initial contact, so make the experience one they remember.  Follow up and do what you promise.  This alone will make you stand out.  Make continuous improvement a priority.  Always look for ways to better serve and wow your customers.  Stay connected, keep them informed and make them feel special.  Do you have a plan or formal method to do so or do you simply take action when you have time or sales fall off?  It’s a lot cheaper to keep customers than it is to ‘buy’ new ones and raving fans are the best advertisement for your business.

There it is.  Not rocket science huh?  In fact, I believe most small businesses have the potential to be better and stronger than they are today. Define what success looks like for your business then apply some of these strategies into what you do.  The results may surprise you.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

Business Choices

7 Small Business Weaknesses You Should Avoid

Every business has its strengths, those things that they consistently do well to get people talking, attract new business and keep customers coming back. Always a good thing. Unfortunately, strengths can sometimes cover up business weaknesses or flaws so they don’t get the attention they need.

For clarification, business weaknesses are areas where improvements need to be made because your current situation leaves you vulnerable to economic pressures, market forces or aggressive competitors. In short, these are the things that hurt long-term, sustainable profitability.

Here’s an interesting way to look at weaknesses. IF you were going to sell your business, what things would make it less attractive to a potential buyer? Note, the things that would make it attractive are typically strengths!

7 Small Business Weaknesses

#1 – No documented systems and procedures. As a result, critical activities including marketing, sales, hiring, service delivery, billing and customer care are not easily repeatable by others and are often inconsistent, inefficient and ineffective. Taking the time to write down how you handle routine tasks saves time and money, makes training easier, and ensures customers expectations are consistently met so they keep coming back. Need help with this one? Check out my Ultimate Systems and Procedures Guide for Small Businesses.

#2 – Business is TOO dependent on the owner or one key person. Some of this is due to a lack of written procedures but is also due to a lack of delegation. A lot of small business owners are reluctant to delegate tasks to others because it requires time to train them or they simply don’t believe others can do it just as well. With documented procedures, training and delegation are a lot easier. And you may just find that others do it just as well – if not better! The more you delegate (or outsource) to others, the more time you have to work on more important tasks like growth and profit improvement.

Related: How to Delegate Effectively

#3 – Too many eggs in one basket. If your business is too dependent on one or two ‘big’ customers, your business is far more vulnerable. It’s easy to become content or complacent when you land a big account. But mergers, acquisitions, new competition or even one bad experience can cause the customer to leave and result in a major revenue loss that you can’t quickly overcome. While you want to keep your big (and small) customers happy, you need to make getting new customers a priority too! Invest the time and resources to grow your customer base. You’ll improve your revenue and profit while reducing your long-term risk.

#4 – No proven methods for revenue growth. If you needed customers quickly, what would you do? Whether you need a lot or a few, every business should have 2-4 proven ways to get new business. Things that consistently work. Things that you can depend on to deliver results. Trying new strategies is necessary to take advantage of changes in the market and new technology. But don’t eliminate what works. Simply add new stuff to your mix and be consistent! Only eliminate a tactic when it no longer produces the results you want or need to make it pay off.  Click here to download 155+ revenue and profit building ideas.

#5 – Lack of differentiation. All products or services become commodity-like over time. Even prescription drugs become generic eventually! So what are you doing to make your company or services stand out for people to take notice? Why should they choose YOU? Differentiation for small businesses can take an assortment of forms relating to convenience or quality, including people, service levels, hours, systems, location, product variety, results, etc. What do you do so well that you can guarantee it or create buzz around it? You only need ONE! With differentiation, you no longer compete on price alone and your marketing is a lot more compelling … so it works!

#6 – Wrong people supporting your business. You can’t do it all. Your success as a business owner will depend on others — employees, subcontractors, and vendors (suppliers). So choosing the right ones and developing them is a key to sustainable growth and profit. Don’t settle or depend on just one. Invest the time and resources to select the best and build those relationships so everyone benefits.

#7 – Lack of cash. Do you focus on sales at the expense of profit and cash flow? It’s a common issue. Getting more customers or growing revenue does not guarantee more profit, personal income or adequate cash to sustain your business. Focus on the bottom line. Grow profitable sales and stop selling what you can’t make money on. Establish a pricing strategy that supports profit, not just sales. Manage your expenses, especially labor, to sales levels. Bill promptly and extend credit wisely. Get a letter of credit before you actually need it and use it sensibly.

Any opportunities for improvement? If so, pick one and start focusing your efforts there. Little improvements can produce big results – more time, more money and more control. So make the commitment and take action.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

Value

Business Value: 7 Ways To Maximize Yours

Have you ever wondered what your business is worth? While profitability will certainly contribute to the business value, many small business owners are surprised to learn that profit alone is not enough – until it’s too late.

If you want to maximize the business value today and the sales price in the future, you must create a business that will operate effectively without you. The more dependent it is on you, the less value it will have to someone else.

Whether you want to increase the value today, turn it into a passive income stream or sell it outright to fund your retirement, it’s time to start thinking like a potential buyer. Here are some areas you should consider:

Customer Diversity. If a large part of your business is dependent on a small number of customers, your business will have less value. Lose one of these customers and the sales and profit are at risk. Start focusing on diversification.

Systematization. A business where processes are streamlined and documented will always be more attractive and more valuable. Make sure you have written systems for all the critical business activities and daily operations so tasks can be done consistently and quickly by anyone. No one person, especially the owner, is vital to the successful running of the business.

Recurring and Repeat Revenue. All revenue is not the same. Revenue that is linked to contracts or agreements is more valuable. Repeat business, based on high customer retention rates, is also more valuable. Focus on retention and look to create some recurring revenue streams in your business.

Unique Products, Services or Technology. If others can easily replicate what you do, then your business will be perceived by others as a ‘me too’ business. Know what makes your business unique and communicate this uniqueness effectively. Your business will be more attractive – and likely less dependent on price.

Product Diversity. If your business is heavily dependent on one product or service, then future projected revenue may be riskier and less valuable. Look for opportunities to expand your products and services or package them in new or different ways.

People – Your Team. The right people, with defined roles and clear goals, are a key to getting results. Make sure you have a system for hiring, training and developing quality people. Ensure everyone knows the goals for the business and understands their role in delivering it.

Bookkeeping & Financials. Your financial records are a strong indication of how the business was run in the past. A good financial management system, like Quick Books, set up properly, maintained and updated will help you run your business better today – and influence a buyer in the future. If you are not sure how to set up your system for both tax preparation and decision-making, speak with your accountant.

If you follow the above tips, you’ll be able to achieve more sales and profit from your business today and maximize the value in the future.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email Joan@HybridBizAdvisors.com

finratios2

Financial Ratios: Simple Tools For Better Business Decisions

Great products, marketing, sales, teams and operations certainly play a role in your success – but one thing is equally vital to sustained growth … understanding your numbers!

No you don’t need to be an accountant and well versed on debits, credits and a lot of financial information. But you do need to have a working knowledge of your income statement (profit & loss), balance sheet and cash flow statement – along with some financial ratios to help you make better decisions, identify trends and uncover opportunities!

There are a variety of financial ratios used to evaluate activity, efficiency, investments, leverage, liquidity and profitability. Relax, I’m not going to bore you with all of them! But here are a few common ones I use often with clients, just to get you started.

Current Ratio (also known as Liquidity and Working Capital Ratio)

This ratio measures your ability to pay short-term obligations. In other words, do you have enough current assets to cover your current debts or liabilities — current being the operative word here. Current assets include cash plus receivables and inventory that can be turned into cash within a year. Current liabilities are those debts that are due within a year, such as supplier payables, credit cards, payroll taxes, etc.

The current ratio can give you a sense of efficiency and measures your ability to turn products or services into cash. Long inventory turnover cycles, poor collection of receivables and inefficient use of labor can contribute to liquidity problems and poor current ratios.

The ratio calculation is Current Assets / Current Liabilities. The higher the ratio, the more capable the company is of paying its obligations. Anything below 1 indicates a negative current ratio, suggesting you may have problems meeting short-term debt obligations. While it is best to compare ratios by industry, a ratio between 1.2 and 2.0 is normally sufficient.

Here’s an example: Company XYZ has current assets of $23,400 and current liabilities of $17,300. Its current ratio is 1.35 ($23,400 / $17,300 = 1.35)

I also find trends helpful, so take a look at your quarterly balance sheet for the past few quarters and do the calculation. Are the ratios up, down or relatively the same? Why?

Here are some ways to improve this ratio for your business:

  • Collect on past due receivables – and grant credit wisely!
  • Accept credit card or online payments from your customers – make it easy and convenient
  • Use a system for billing – be consistent, be timely, be accurate
  • Have a system for collections – a series of scripts, emails and letters helps – be persistent.
  • Manage inventory – buy ‘just in time’ and get rid of obsolete stuff
  • Schedule deliveries / service efficiently to manage labor costs

Gross Profit Margin Ratio

This ratio shows your company’s financial health after Cost of Sales or Goods Sold are deducted from your Revenue (Sales). It measures your pricing strategy and operating efficiency. Your gross profit represents what is left to pay fixed expenses (like rent, insurance, administration,) along with owner’s compensation and future savings or investments.

Gross Profit Margin is (Revenue – COGS) / Revenue

Here’s an example. Company XYZ earned $5 million in sales while incurring $3 million in COGS related expenses, so the gross profit margin is 40%. ($5M – $3M) / $5 M. That means for every $1 earned in sales, the company has 40 cents in gross profit to apply to other expenses and future savings.

This ratio is a common benchmark used to compare a company with its competition. Higher efficiency and greater uniqueness (premium pricing) typically translates into higher gross profit margins. Optimum profit margins vary by industry, and are available through industry associations, online services and your local library.

Return on Investment Ratio

ROI is a performance measure used to evaluate the efficiency and/or profitability of an investment for comparison with other investment options.

Many are familiar with ROI as it relates to financial investments, such as stocks and bonds and real estate. But as business owners, this metrics is used to evaluate a variety of investments – equipment, hiring, education/training, and marketing to name just a few. And yes, marketing is an investment!

ROI is calculated as follow:

Gain From Investment – Cost of Investment / Cost of Investment = Return on Investment

Here’s an example. Company XYZ invests $1,500 on a new marketing program. They anticipate the effort will produce $7,000 in additional revenue. So the projected ROI is $7,000 – $1,500 / $1,500 = 3.66 or 366%.

One caution when it comes to comparison of ROI ratios. Be clear on what is included in the Gain and Cost elements and be consistent with your comparisons. In the above example, we defined the gain from investment as revenue, a common practice; but we could just as easily defined the gain on investment as gross profit from the additional revenue.

Here’s an example to demonstrate the difference. In the above example, assume that Company XYZ operates with a 40% gross profit margin. Then the gain on investment would be additional revenue ($7000) x gross profit margin (40%) or $2,800. The projected ROI is now $2,800 – $1,500 / $1,500 = .867 or 86.7%

There is no right or wrong method – just be consistent in your approach. When getting ROI ratio from others, be clear on the gain and cost elements they used!

There’s an old saying when it comes to measures of success – What we measure, we can improve. Start using these tools in your business – and put yourself on a path to better decisions and better results!

More Ways to Grow Your Business

For new business improvement articles, exclusive tools and insights on entrepreneurship, click here to subscribe to my monthly eNewsletter. When you do, I’ll also send you my free eBook, How to Build Profit Through Leverage.