What should you do if you want to make more money for your business? Ask the vast majority of new business owners out there, and they will all tell you the same thing – make more sales.
Of course – the more customers you have, the more money you will make. But there is a better way of improving your profits – by cutting costs and improving your bottom line.
In this guide, we’re going to take a look at the bottom line of your business, describe what it does, and reveal some savvy tips on how to improve your current position. Let’s take a closer look.
What is your bottom line?
Your bottom line is an accounting term for the net income that is reported at the bottom of your income statement. When you do your accounts, you start with your revenue and then take away your expenses – which then gives you your bottom line amount of money that is left for you to spend, distribute via dividends, or bank as you see fit.
What can impact your bottom line positively?
The most obvious way of improving your bottom line is to increase your revenue by making more sales. This can be done in several ways. For example, you can increase production or improve your products, so you receive fewer returns. You can also expand your product lines or offer more services – or even increase the price of your product or service.
However, while this is the most obvious way of making more money for your business, the reality is that reducing your expenses is often a lot more effective.
Why should you focus on cutting costs?
Let’s say you sell 100 products and have a revenue of £1000 that has cost you £600 to create – you get a profit of £400. Now let’s say you want to double your sales – so you sell 200 units, minus your costs, and get a profit of £800.
But what if – before you make more sales – you decide to cut the cost of your production instead? You focus on cutting the expense of creating 100 units to £400, leaving you with a profit of £600. So, when the time comes to ramp up production, you end up with £1200 rather than the £800 you would have made without addressing cost cutting.
As you can see, improving your bottom line can have an incredibly powerful impact. All those extra profits can be banked, invested, or even used to pay for a price drop, which in turn will lead to more customers and market share. So, the big question is – how can you start cutting costs to improve your bottom line? Let’s get stuck into the details right now.
Hire an accountant
When you run a small business, it’s likely you also have a habit of doing everything themselves. It’s easy enough to see why, of course – when money is tight, why pay someone else to do tasks you can do for free?
The trouble is, when it comes to financing, taxes and accounts, there is a considerable cost involved. Taxes are incredibly complicated, and unless you are a professional accountant, the chances are that you won’t be able to identify efficient – or legal ways of minimising your tax liability.
Yes, there is a cost involved when it comes to hiring a bookkeeper or accountant. But ultimately, the expense of hiring a professional will probably be far less than what it actually saves your business.
Streamline your insurance
We all start our businesses with the best of intentions, but at some point down the line, there are certain things that get forgotten. Business insurance – in all its many forms – is one of those things that fall by the wayside. When you start out, you make sure that you are covered for everything.
Let’s assume you run a beauty parlour. You might need specialised liability insurance for salons to protect you in the event of a customer getting injured during treatment or is on your premises. Employer’s liability insurance is something else you will need – assuming you are already hiring staff. And then there’s the coverage for buildings/property, products liability, protection against theft and everything else that goes along with running a business. But, once your first year runs out, are you keeping tabs on your payments?
It’s usual for insurance companies to entice new customers with good deals, and then hike the rates after the contract ends. In almost every circumstance, there will be cheaper options and better deals out there once you are off your introductory period. Also, make regular checks that you are only paying for what is necessary.
Target your current customers
If you want to reduce your costs but still make more sales, the best way to do it is to target your current – or old – customers. Despite the fact this idea makes perfect sense, it’s surprising how many small business owners focus on finding new customers rather than selling more to the ones they already have access to.
Here’s the thing – it costs more money to attract new people to your business than it does to tempt your current client base. You already have their details. They already have trust and faith in your business and have proved themselves loyal. And they are more likely to react to being offered deals and discounts than a raw prospect who doesn’t know your business at all.
In fact, the difference between selling to a current client and spending money on a huge marketing campaign to attract new customers can be as much as 60 percent per cost of sale. That’s a huge amount of money you could be saving, and a massive contribution towards improving your bottom line.
Spend more time making money
Let’s assume you are a one-person business, who does everything – from your accounts all the way through to your marketing. Now, every single task you do that takes you away from the money-making activities of your business is, ultimately, costing you more than you might think.
To clarify this point, let’s go through a few figures. Assume you are a copywriter, with a day rate of £400 – but you only actually earn this when you are copywriting for clients. You might spend three days a week working on projects, with the other two days put aside for updating your records, writing a blog post, connecting with your audience on social media, and everything else, and responding to potential client inquiries.
It’s all valuable work, of course, and it needs to be done. But the point is, you are – effectively – spending £400 a day on admin duties. What if you paid a virtual assistant £150 a day to do all of this instead? It frees up your time to spend an extra two days with clients, which gives you the potential to earn an extra £500 a week for your business. A lot of small business owners see outsourcing like this as an unnecessary expense, but the reality is that it can free up your time significantly – and you can make it worth your while.
Cut costs in your office
There is a vast array of ways that offices waste money – and almost all of them are avoidable. Let’s say you have a small office-based business with 4-5 employees. Now, let’s assume that each of your staff uses a printer 10 times a day, printing an average of 10 pages per visit. That’s 100 pages per member of staff, every day your office is open – how much is that costing you in electricity, paper and ink? It’s completely unnecessary in many cases, especially in today’s digitised world. Yet there are plenty of small business owners who don’t understand the massive costs that can build up from using paper over the course of a year.
So, have a good think about where your office is losing and wasting money. Try going paperless. Get people in the habit of turning off the lights and shutting down their computers when they aren’t in use. Start using long-lasting, environmentally-friendly light bulbs. And hold an energy audit once or twice a year to see where you are losing money – and where you can make savings.
Individually, on a daily basis, none of these costs will seem large enough to worry about. But tot everything up across an entire year, and you can guarantee it will be a significant sum of money that you are throwing down the drain. And every penny is taken away from your net profits.
Reduce your payments
Finally, don’t forget about your cash flow. Having cash available means you will avoid taking on debts and incurring interest – all of which will affect your profit margins. You have to pay your bills, of course, but when you pay them is another matter entirely.
For example, if you pay a 30-day invoice as soon as you receive it, you effectively remove cash from your business – which could be used to invest in making and selling more products.
Similarly, make sure that any loans you have are at the best rate possible. As you become more successful over time, banks will develop some trust for your business. The interest rates on offer when you start out will be massive compared to those on offer when you are established. So, compare loan companies every 6-12 months or so, keep tabs on your credit rating, and don’t be afraid to swap your current borrowing to a different company.
Good luck with the cost cutting!
