Starting a small business is already tough but making it profitable is a whole different ballgame. You know that scary statistic: it takes around two to three years for a small business to become profitable.
But at some point, you realise that it’s just not sustainable to keep running at a loss, and you need to look at ways to increase your cash flow and gain profit.
Fortunately, this blog addresses what you may need to become a profitable small business in Australia.
It will first discuss some fundamental tips that will help form the basis of a profitable business and then move on to the dos and don’ts of reaching profitability.
Lastly, it will list some strategies to increase profit and reduce costs.
Hopefully, by the end of this article, you’ll have the information you need to make a profit in your small business.
Fundamental Business Tips
1. Develop a Business Plan
Your business plan is the blueprint for your business’ success. It will outline your business goals and map out the strategies you will use to achieve them.
Given the title of this article, one of the main objectives of business finance is to turn a profit, so write that down under your business goals section.
Follow this guide to find out more about developing a business plan.
2. Decide how you will pay yourself
Are you willing to pay yourself a salary for your work? And if so, how much?
While this may be a difficult question to answer, deciding on your salary will help you stick to the budget in your business plan and keep you on track to becoming profitable.
It’s a good idea for a business plan to clearly outline the timeline for a profitable business, as well as when and how much you can pay yourself. It is important to determine whether a lower wage with greater investment in the business is better than a higher wage and a lower investment.
While the second option may reduce your financial stress, the first option will help you build a sustainable and profitable business that lasts for the long term.
You can draw money from the business to pay for your own expenses. But it’s important that you keep it within the scheduled limits that you set for yourself.
If you aren’t financially inclined, consider seeking the help of a financial adviser or professional to set you on the right path and reach a budget that caters to your business and your personal needs.
3. Sort out your business insurance cover
No matter what industry, running a business involves a lot of risks. If one of these risks were to occur, it could threaten not only profitability but your business itself.
From legal fees to fines and damages, claims can be expensive, and it’s important to put a financial safeguard in place to protect you from them.
It would be devastating to lose all your hard work and investment in building a successful business, only to find out that you don’t have the right insurance.
Analysing your risks and what insurance coverage you could use to reduce them could be the difference between remaining profitable and going out of business.
Extra tip: Consider BizCover for your business insurance needs
From the endless forms to the confusing jargon, it was difficult for small business owners to get business insurance.
Many would put it in the ‘too-hard basket’ and go without, only to be left without a safety net when something went wrong.
BizCover changed this terrible scenario by making it easier for small business owners to compare and buy business insurance from some of Australia’s top insurers.
BizCover’s mission is to lower costs, increase transparency in pricing and reduce the hassle of getting insurance.
No matter if you are based in the outback or Sydney, business insurance is as easy to get as jumping online and selecting your preferred policy. After that, you’ll be covered immediately.
4. The Dos and Don’ts of Creating a Profitable Business
Do: Track your time
The saying goes that time is money, so it’s best to treat it as such when trying to create a profitable business. Good time management will allow you to prioritise tasks and ensure you have enough time to complete your projects to your deadlines.
It will not only help you stay on track in your day-to-day, but it may also help you achieve your long-term business goals.
Do: Automate where possible
You will likely need to be able to do the essential functions without spending a lot of time or reducing their value. Automation software and online solutions can help you accomplish this.
Automating your processes could free up much-needed time in your business so you can focus on other things.
From invoicing and money management to the interaction with customers, there are many different areas of a business that can be automated.
It’s best to assess your processes and determine where you can improve your efficiency.
Do: Understand your current costs
You will likely need to know where you are starting from before you can focus your efforts on increasing profits. This means that you must know all costs. And don’t just calculate general expenses, either. It is also essential to determine the value of your regular activities and the financial impact they have on your business.
Profitability doesn’t require rocket science. It’s all about the relationship between revenue and expense.
Analyse where your business currently sits so you can understand your current environment before making any decisions.
Don’t: Undercharge Customers
Undercharging your products or service is a critical mistake that can lead to low profits for small businesses.
You might consider rethinking your offer if your prices are too low to barely cover your expenses.
This is where your competitor analysis in your business plan comes in handy. You can compare your service to competitors and see where the average market rate sits.
If your service or product is inferior to your competitors, it makes sense to price it slightly cheaper. But don’t undercut yourself from making money.
If customers begin to dry up after you’ve increased prices, then perhaps it’s time to adjust your target market and aim your marketing towards people who will pay a higher fee.
Don’t: Spend too much time on low-value activities
Knowing how much your time is worth will allow you to spend more time on things that drive business results. This means removing things that don’t add value.
Running a small business is difficult to balance. Once your business starts to grow, one of the most significant mistakes people make is spending too much time on essential but low-value activities. A great example is things like payroll, accounting, invoicing, and scheduling — all essential activities that can often consume way too much time for a business owner.
5. Strategies to increase sales revenue
Here are some quick business growth drivers that can help you increase your revenue:
- Get new customers – New customers can help you grow your business.
- Create new product lines – Ask your customers what new services or products they are most interested in.
- Get to know your best customers – find out who they are, what they purchase and when they buy your product or service. This information can be used to market and advertise more effectively to them.
- Search for new markets – use your market research to determine if there are potential expansion opportunities in new areas.
- Customer Service – Improve your customer support and create a staff training program if you have employees
- Price Discounts – take into consideration price reductions and promotions to grow your customer base and enhance your offering.
6. Strategies to reduce cost
Here are some strategies to reduce costs and improve your financial performance:
- Reduce inventory – use stock control for a more efficient business and increased cash flow. You can make more money if you don’t have slow-moving inventory.
- Reduce direct costs – build connections with the right providers for your business and negotiate better processes or discounts when buying in bulk. Avoid unnecessary purchases.
- Reduce indirect costs – minimise wastage, train staff to maximise efficiency, and use low-cost advertising techniques.
- Benchmark key financials – benchmark your business to compare costs (like rent, utilities, etc.).
Final words
Being in a small business requires a lot of perseverance. Sometimes things don’t work out despite your best efforts, and your wallet begins to feel the pinch.
But through continued research and implementing some savvy business strategies, you can increase your company revenue, reduce costs and increase company profit.
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording.
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ABN 68 127 707 975; AFSL 501769
