Businesses are feeling the pinch at present, as economic issues continue to beset the UK.
The cost-of-living crisis has had an undeniable impact on consumer spending, as household budgets are continually squeezed by rising prices; part of the cause, of course, has been an increase in wholesale costs which has squozen businesses and retailers from the other side.
With spending down and interest rates rising, recession remains a distinct possibility for the country – and a major concern for small businesses in particular. Improving the profitability of your business is vital for longevity even at the best of times, but can be crucial for creating a cushion for businesses in times of economic downturn.
There are multiple ways you can approach increasing profitability for your business, but what are they exactly?
Reducing Costs
The first, and perhaps most obvious, route by which a business might increase its profits is through reducing its existing costs.
Business costs can be split into two main types: variable and fixed. Variable costs change according to the scope of the business; the more products you make, the more you spend on materials to make them. Fixed costs do not necessarily scale with productivity, taking the form of loan interest or rental costs.
Variable costs might be reduced by re-visiting the contracts and relationships you have with supplier, where cheaper wholesale costs could be guaranteed through finding new partners. Fixed costs could be addressed similarly – for example with energy, where switching supplier could see you get a significantly cheaper tariff.
Financial and Accounting
For any business, the accounting department plays a fundamental role – not just in managing legal obligations but also in keeping track of the flow of money. In difficult times, it can become difficult to properly track your expenditure, and gaps in your accounting can form quickly – particularly if you are managing multiple departments with a skeleton crew.
Outsourced accountancy services can help you tighten up your finances in the short-term, identifying points of failure and increasing efficiency in the process.
Increasing Productivity
Improving productivity can have a direct positive impact on profitability, and especially so for businesses that provide services over products. Productivity is a major topic in and of itself, but there are some key considerations for improving it – most of which concern your staff. Staff morale and contentment is paramount for increasing productivity, and the evidence is clear in suggesting so. Focusing on improving conditions for staff, then, can be a great starting point for improving productivity and hence profitability.
Developing New Products and Services
Finally, it is important to acknowledge the ever-shifting nature of the markets within which businesses operate. Competitors rise and fall, which technologies advance and consumer attitudes shift besides.
Recognising that the market is dynamic as opposed to static should be step one in forging a profitable path forward; how can your business innovate, and are there any new gaps in your market that you could seek to fill?
