From tech unicorns to online retail stores that have gone global, we all hear about the businesses that have managed to make millions or even billions within a few short years of launching. Yet, for most of the 2.3 million small businesses in Australia, the reality is very different. In fact, for many businesses, it actually takes years before they turn a profit.
Profitability
According to IBISWorld the most profitable industries in Australia in 2022 are Superannuation Funds with $137.7 billion total profit and Iron Ore Mining with $56.1 billion total profit. Profitability is just one way to measure success. There are thousands of small businesses that are growing rapidly but are not yet turning over a profit. While this is considered acceptable, it’s important to note that no business can survive in the long-term without profitability.
The main ways to boost profitability is to increase sales, improve gross profit (by either increasing prices or reducing input costs) and/or minimise expenses by improving efficiency. So how can we do this? Here are some top tips:
Examine and understand your financial situation
To find ways to increase profitability, you must first understand your business’s financial situation – and this means looking at the numbers closely. At Inline Partners, we take the time to gather financial data and examine a range of metrics to help determine the financial position of your business. These include revenue growth (%), gross margin (%), operating profit (%), revenue to overhead expenses (%), average sales per customer, return on assets and breakeven point. Once we understand these key metrics, we can implement an action plan to help your business improve its efficiency and productivity, which will lead to higher profitability.
Develop a business plan and roadmap for the future
There’s a common saying; “businesses don’t plan to fail, they fail to plan”. It’s an accurate catchphrase. Many small business owners create a business plan when they first launch but never come back to it. However, business planning should be a continuous activity for all leaders and business owners. Your business roadmap, which includes how you plan to make a profit and a budget, needs to be reviewed and tweaked regularly to ensure you stay on track. Simple factors such as high staff wages or rent and very low prices can have significant impacts on your business’s bottom line. At Inline Partners, we can identify these financial problems and help you find ways to start improving your profit ratio immediately.
Implement systems so you can focus on the big picture
It’s easy to get caught up in the day-to-day operations of running a business. We often hear of business owners getting bogged down with menial tasks because they don’t have the right systems in place that will allow them to focus on the big picture. Utilise business software tools that will do all the hard lifting for you and minimise errors that can cost time and money. Streamlining processes will free up your time to be more strategic and allow you to concentrate on the overall goals of the business.
Do you need help with your small business? We can help you with accounting, budgeting and structuring your business to improve your profitability. Contact us.
