As a business owner, the most important figure to know on your income statement is your bottom line. It’s a term that refers to your net income, known as the ‘bottom’ line as it lies there on your actual statement. In general terms, there are two ways of improving your bottom line. The first is by far and away the most common for new business owners to focus on: finding new customers and growing your revenue. But it’s the second that is actually more efficient: increasing your efficiency and cutting costs.
Why is this the case? It’s simple. When you cut costs, you reduce your cost per sale. Sure, finding new customers is always going to boost your profits, but it won’t maximize them, and in some cases the more you produce, the higher your costs will rise.
To be more efficient, it’s vital to cut down on those costs per sale, as it not only makes your offer more attractive to customers but also boosts your margins. Whether you keep that margin as a profit or pass on your savings to customers is up to you – but it’s easy to see how much more efficient saving expenses is as opposed to always being on the hunt for new customers. Here are some ideas on how to improve your bottom line and be more efficient as a business.
Target current customers
It costs more money to target new customers than it does to appeal to current ones. In fact, the difference could be as much as 60 percent. It makes complete sense when you think about it. You already have your customer’s name and details in your database, so putting them on a nonintrusive email list and offering them deals and discounts costs far less than investing in a brand new marketing campaign attracting new people to the business. Never forget about your current set of customers, as not only could they prove loyal and offer a high lifetime value, but they also reduce your cost per sale by a significant amount.
Hire an accountant
Small business owners have a habit of doing everything themselves. On the face of things, it’s easy enough to see why – when funds are tight, why pay someone else to do something you can do for free? However, when it comes to accounts and taxes, is there really no cost involved? The reality is somewhat different. Taxes are complicated, and unless you are a professional accountant, it’s unlikely you will be able to reduce your payments either efficiently or legally. Both are vital when it comes to your financial protection, so the cost of hiring a professional will probably be far less than what it actually saves your business. Accounting tools such as QuickBooks Desktop Enterprise with hosting with powerful tools such as Microsoft 365 business can simply your bookkeeping and accounting capabilities with an multi-user environment.
Outsource nonessentials and specialities
On the subject of business owners going full ‘DIY,’ there’s every chance it is costing you money and opportunity. Let’s say you are worth $2,000 a day to your business when you are out hustling for sales. Now let’s assume that you only do this for three days a week, and the other two days you are doing paperwork and filing. You might think you are saving money on admin costs, but the reality is that you are actually wasting $4,000 over those two days – it’s money you could be earning.
Outsourcing to a virtual assistant for $150 per day, for example, will free up your time to earn the money you should be. There’s also a cost attached to doing tasks that aren’t your specialty. Yes, hiring a marketing agency can cost money, but what is the cost of getting it wrong when you DIY? Can your business really afford for inexperienced people to manage vital campaigns that are imperative to your bottom line? Like an accountant, a good marketing agency should pay for itself, both in results and also free up your time to focus on your most profitable activities.
Laser-focus your marketing
Let’s take a look at marketing in more detail. There’s another good reason why you would want to hire a digital marketing company to run your campaigns – it’s because they can be a lot more efficient with your campaign spending. Many new marketers and business owners are more intent on getting their message out than actually understanding their ideal market correctly.
And more often than not, the result is a campaign that tries to appeal to everyone and ends up attracting no one. Your focus in marketing should be on acquiring the best possible customers through your campaigns and stopping your spending on acquiring low-value customers who turn out to be a waste of time, money, and resources.
Turn off the lights
This tip is so simple, yet few business owners understand its ability to save them serious cash. Every single time you switch off a light or piece of electrical equipment instead of leaving it on, you are reducing next month’s utility bill.
Turning off a light when you leave a room might seem insignificant on its own, but when you add up the number of times, you should do it over a year, that one good habit alone can save a considerable amount of money. And when you have a complete overhaul of your energy saving practices and introduce similar ideas into every area of your business, the cost savings can be impressive in the long-term.
Cash flow management
Many new business owners make the huge mistake of putting profit at the top of their agenda. But in the vast majority of cases, it is cash flow that is the most critical aspect of business finances. Cash flow gives you options, and not having it r always having to chase it will ultimately end up costing you unnecessary money.
You will need to set up a cash flow forecast, including all your commitments – such as paying salaries, for example – and weave in predictions for payment of invoices and estimates of future profits. Unpaid invoices account for tens of billions of dollars, and the longer you leave these uncollected, the bigger impact it will have on your business.
Another aspect of cash flow management is, of course, paying your own invoices and bills. There are a few things to consider, here. First of all, never pay your invoices early, as it removes cash from your business that could be earning you money. As long as you pay everything within the defined period, your suppliers and contractors will be happy enough.
Secondly, have a think about any business loans or lines of credit you might have, and see if you can swap them for a better deal. When you’re just starting out, it’s hard to prevent banks and lenders seeing you as a risk, as you are unproven. But when you begin to enjoy some growth and success, you become less of a gamble, and the chances are you will qualify for a lower interest deal than you are currently paying right now. It’s worth talking with your financial advisor or banker about your options, as quite often this can reduce your loan payments – and costs as a whole – by a significant amount.
Improving your bottom line
Unless you address the cost issue for your business, the reality is that your bottom line will never be in good shape. Let’s assume your $200 product costs $100 to produce. The more you sell, the more revenue you will earn, for sure. However, profits are another. What if you could cut those costs per sale to $50 a unit, or even $25? The result will be higher profits, or the opportunity to reduce your prices and attract a larger volume of happy customers. Either way, your business will be a lot stronger and more robust than it is right now – good luck!