My business isn’t making enough profit? What should you do

The day-to-day running of a business is no easy task and every once in a while, directors and shareholders may find that their enterprise isn’t performing quite as well as they would like.

Fortunately, if this problem arises, there are plenty of options you can consider for improving the performance of your business –increasing its profitability, and enhancing its cash flow. Perhaps the best first step, however, is to consult your accountant.

Many businesses don’t realise that their accountant has the skills and experience to help them improve their performance, profitability, and cash flow.

We are best-placed to help your business achieve its goals, by advising you on tax-efficient business structures, costs savings and methods for getting the most out of your organisation.

At McGills Chartered Accountants, we know about business and have experience across many sectors so we can benchmark your business performance against your industry, identifying where you can make more money, cut costs and helping you to achieve greater profitability.

There are some crucial methods to achieve and drive profitability. This includes reducing costs, increasing turnover, boosting productivity, improving efficiency and much more. We have put together this short guide to assist you with addressing these areas:

Are you managing your costs?

Making sure you closely manage your costs is one of the key methods of driving profitability.

Sometimes, businesses can find some wastage to reduce, utility prices that can be slashed or new efficiencies that can be made. However, you should be careful when cutting costs, not to take steps that reduce the quality of your products and services.

We advise examining the following key costs:

  • Finance
  • Premises
  • Production
  • Suppliers

Have you assessed your products and services?

It is important for you to look carefully at what you offer to customers, who your customers are and how you can make any improvements.

Of course, your price list impacts your profitability, but the type of customers you are selling to also makes a significant difference.

You should focus on your most profitable customers, even if it means letting the less profitable ones go.

This could increase your profitability, if handled correctly, while also improving cash flow within your business.

Are you buying effectively?

This one may seem like an obvious route to increase profitability, but buying more effectively is imperative.

Review your supplier base regularly and see if you can buy the same materials cheaper elsewhere or negotiate a better deal with your existing supplier. Remember to maintain a high level of quality so that customers don’t switch to competitors.

It can be useful to try bargaining with your suppliers, using your status as a valued customer to agree long-term contracts or annual minimum spends with other suppliers at a better price. However, if you cannot cement a better deal, consider switching to other suppliers.

Businesses should also review the number of suppliers they use. Buying from too many businesses can be inefficient and add complexity and additional fees and shipping costs. It is important to know the balance between having too many suppliers and not placing all your business with one or two suppliers as this can create supply chain vulnerabilities.

Have you expanded your market?

Staying flexible and moving into a new market area can transform your business when handled carefully. This is a risky move for some businesses, so it is important to prepare properly.

Before deciding on expansion, it is crucial to carefully research the opportunity.

Ask yourself whether your business can tailor and adapt existing products or services to a new market and its environment. This can provide new revenue at minimal cost and is great for boosting profit.

Many businesses have experienced the benefits of diversifying their products and services during the last few years, often as a response to the changing requirements of their customers.

Are you concentrating your sales efforts?

Whether you are selling more to existing profitable customers or finding similar new customers to sell to, it is key to prioritise sales efforts to boost profitability.

Encourage customers that provide high sales and high profit and nurture those customers who provide high profit on low sales.

Not only this but making a judgment on expanding your customer base by finding new consumers with a similar profile can be extremely influential.

If you are certain you have covered your existing market and customers as much as you can, consider moving to new customers or taking your existing offering online.

More and more consumers are purchasing their products and services via dedicated e-commerce sites, so if you do not have an online presence, now may be the time to invest in this area.

Business development and growth

Business planning and forecasting are part of our business development and growth service.

We offer wide-ranging expertise to help your business reach its full potential. We will work alongside you to help you take the necessary steps, which could range from sourcing funding for expansion or an acquisition to making sure that your business works as efficiently as possible.

We can also assist with benchmarking, performance measurement, and target setting as well as profit and cash flow improvement.

For more help or advice, please contact us today.