Learn how small business owners can increase profitability by improving productivity and efficiency, optimizing cash flow, and being prepared when opportunity strikes.
Small business ownership can feel like a numbers game — like you’re always trying to stay ahead of expenses to run at a profit. What if you could make small but meaningful changes to increase profitability and set your business up to grow? Here are five ideas to help you run your business more efficiently and earn more profits.
Increase Productivity: Automate Your Back Office
When back-office tasks start to pile up, you and your staff can’t focus on mission-critical areas. Back-office tasks include all of the administrative work that was traditionally done in a “back office,” as opposed to direct interactions with customers.
By automating back-office tasks, you can spend more time developing your growing business and focusing on what matters most to your bottom line. There are two main areas where you can save valuable time with the help of intuitive software that can automate repetitive administrative tasks:
There’s no need to drown in a mountain of spreadsheets and paperwork. It’s 2020 — those old ways of managing your business are antiquated. If managing your books still resembles balancing a family checkbook, it’s time to upgrade.
Not only does a manual process waste time, it makes it more difficult to visualize your company’s holistic financial health and easier to make mistakes. By syncing up all your accounts in a single, intuitive online dashboard, you can take one more task off of your to-do list and see the cash that’s coming in and going out much more clearly.
Chasing down invoices from clients is also time consuming, not to mention frustrating. With invoicing software, small business owners can automatically remind clients when invoices are due. In fact, you can automate all vendor payments and invoice requests, and even adjust timing to work for the ebb and flow of your company’s cash flow.
For example, timing payments to ensure that expenses are paid after invoices are received gives you the peace of mind that there will always be enough cash in your account when it comes time to pay vendors or employees. Less time worrying about your cash flow equals more time dedicated to growing your business.
The more productive you are when completing administrative tasks, the more you’re able to devote time to areas of your business that directly support profitability, whether that’s strategizing, drumming up new business, or improving your product offering.
Improve Efficiency: Consolidate Your Financial Management
Bouncing from accounting software to a project management app to a bank account and back to accounting software, with a quick stopover for payroll, is messy and tedious. It’s also a fairly typical workflow for a small business owner without a streamlined, all-in-one system.
One distracting phone call or email in the middle of this process, and you may have to start all over. By consolidating financial management products, small business owners can improve efficiency while completing critical back office tasks.
Does your business have multiple vendors and clients who work with different payment systems? Some companies you work with may prefer paper checks, while others expect ACH, and still others want to pay or receive payments online via debit or credit card. Consolidating all inbound and outbound payments into a single system that syncs everything in one place can save you significant time.
Reduce Operating Costs
A few small changes can save you significant money.
For example, you can save on payroll with a comprehensive payroll solution that automatically tracks employee work time, generates paychecks, manages reimbursements and incorporates tax costs. Without any human error to miscalculate payments or time-tracking, small business owners can save both time and money on payroll preparation.
Another way small businesses can reduce costs is by outsourcing talent rather than hiring full-time employees. These days, highly qualified freelance workers are available to hire on demand when your business needs support. Tapping into the gig economy also allows you to avoid paying taxes and benefits for your workers, which can significantly reduce your payroll costs.
Working with freelancers also reduces hiring costs. Writing a job description, screening applicants, interviewing candidates, and ultimately deciding on the new hire is a time-consuming process, and your time is valuable. Working with pre-vetted professionals on a contract basis reduces payroll costs, hiring costs, and the risks associated with vetting and hiring full-time workers. It’s also a great way to leverage financial specialists like accountants and bookkeepers, who may be cost prohibitive to hire full time.
Gain Cash Flow Confidence
The best way to improve profitability is to have your finger on the pulse of the cash that’s coming in and going out of your business. Understanding how your cash flows helps you optimize time and priorities accordingly. By having a comprehensive handle on your books, you can discover areas to save, and adjust the timing of major expenses to align with incoming payments.
Cash flow analysis doesn’t have to be difficult. It’s easiest and most effective to get a comprehensive picture of your cash flow when all your financial data is in one place. Switching between disparate accounts, spreadsheets, and software exposes you to the risk that something will get lost in the shuffle or entered incorrectly. With all your relevant information in one intuitive, easy-to-read dashboard, you can see patterns, find room to improve, and identify data entry mistakes.
Many expenses and payments are recurring or seasonal, which means you can make future predictions based on past trends. Cash flow projections allow you to predict how much money you’ll have and need in the future so you can plan for up-and-down swings. The unexpected is to be expected in small business, so having a handle on cash flow allows you to build in a cushion so you’ll be prepared for anything.
Having an eye on your books also helps ensure that you have positive cash flow for several consecutive months, which is a major criteria to qualify for a small business loan when it’s time to apply for financing.
Prepare for Timely Opportunities
You never know when something unexpected is going to arise — an opportunity or a challenge — so it pays to be prepared. Applying for and accessing credit before you need it can help you develop a relationship with lenders and qualify for better rates. When there’s an opportunity to increase profitability, perhaps by entering into a partnership or adding a new product to your offerings, you will be ready to act.
Secure a line of credit to pay for known recurring expenses (the ones you’re seeing so clearly in your integrated cash flow dashboard!), so that you’re able to leverage the benefits of accessing capital without taking on unmanageable debt. If a challenge comes up and you need cash fast, you’ll have the peace of mind that you already have it rather than trying to scramble to access credit last minute.
You might be surprised that even relatively young companies have credit options. Alternative lenders look at as little as 90 days of financial information and are less likely to require collateral, which makes financing more accessible for small business owners. Having an existing relationship with lenders before an up or down swing helps you lock in more favorable rates and ensure ongoing profitability regardless of what the future brings.
If you stay ready, you don’t have to get ready. A few simple adjustments to your business operations can make a huge impact not just on profitability, but also on day-to-day productivity. By increasing efficiency and streamlining cash flow, your small business will be ready for any opportunity that may arise.