All entrepreneurs desire to build profitable businesses. After all, the only way to achieve longevity is by making more money – right?
Wrong. And here alone is where the problem begins.
Building a profitable business is determined more by how much money you keep and not solely what you make.
However, before I begin, allow me to explain the difference between revenue and profit. I find that many entrepreneurs confuse the two. Revenue is your top line number. This is the gross amount you receive for the services that you provide.
Profit is your bottom line number. This is the net amount after all expenses and cost to provide your services and products have been subtracted. As an entrepreneur your goal should be to continuously increase your bottom line because this determines the true health of your business.
Now that you have a clear understanding, here’s a look at five powerful ways to increase your profit.
1. Plug money leaks.
Review your business expenses over the last 6 to 12 months. Identify unnecessary charges, starting with the overlooked subscription services you are not currently using. For example, those free 30-day trail offers that begin to withdrawal funds from your account. Canceling unnecessary services will increase your bottom line.
Or perhaps, you offer free 30 minute consultations that always go over the time. Before you realize it you are still consulting one, and even two hours later. This could have been additional revenue generated if you would have positioned yourself for the upsell.
2. Save 5% of every invoice total.
Open a separate business saving account outside of your regular banking institution. This will be called your Profit Account. Each time a payment is received transfer 5% of the payment into your Profit Account.
You are now building a cash reserve for your business that will bring you financial peace of mind. This will also prevent stressful times during your slow season. In addition, I recommend that during peak seasons you double up on your saving from 5% to 10% even 20%.
3. Budget before purchasing.
Many times entrepreneurs attend events where there is a 100% chance of spending money. We are quick to swipe our card on drinks, food or little items that are forgotten after the event. Later in the month when cash flow is low we begin to wonder where the money disappeared too. This drains your bottom line and places you in a financially stressful position.
My advice would be to budget for the event before you attend. Include in your travel budget, meals, room and board and miscellaneous items. Then the day of the event do not carry your bank card. Only carry cash based upon your budget. This will enable you to keep your current financial position top off mind and prevent over spending.
4. Question before purchasing.
Before making a purchase determine the motives behind the purchase. For example, by purchasing the “next best shiny object” determine if your business will truly benefit from it.
Many entrepreneurs suffer from the “shinny object syndrome” only to realize later that the item was a waste of money. Before making a purchase ask yourself the following three questions:
How will this purchase impact my bottom line?
Is this item truly needed or can I survive without item?
Will this purchase cause more revenue to be generated in my business?
5. Rebuild past client relationships.
Before a potential client is willing to purchase from you, you must establish the know, like and trust factor. If you have past clients you have already established this prerequisite for purchasing. Begin rebuilding a new connection with them to encourage a new purchase or referrals.
For example, send a post card, conduct a “Just Checking on You” call or invite them a to “Reconnect Virtual Coffee” chat. If you have serviced your past clients with excellence they are more willing and faster to purchase from you again.
Remember profit is the bottom line number. Maintaining a healthy bottom line is needed to achieve longevity. Begin by implementing the above five strategies to increase your profit today.
This article has been edited and condensed.
Octavia Conner is a profit increase expert, accountant and speaker. Known as the Profit Maximizer, she helps service-based entrepreneurs within the first 7 years of business turn their passion into 6 figures and beyond. Through a combination of profit coaching and accounting over 85% of her clients experience at least a 45% increase in their profits within the first 3 months of her guidance. Connect with @TheBestOctavia on Twitter.