A journey to profitability

It is not unheard of that people close down their businesses because not they are not profitable anymore. Yet, this doesn’t happen overnight – it is a long process of spiralling costs, processes that become more complicated (and costly) over time and/or ineffective marketing.

But wait – it’s not all negative, doom and gloom. We can make businesses profitable. And we can move hustles forward by making small decisions to move a business forward. 

Are you willing to become more profitable?

Profitability and your business

Silos, red tape and unprofitable cost centres eat into the profits of big corporates. For this reason, big companies need to use economies of scale to have sufficient profit margins. But small businesses have more power, as they are more agile – it’s often easier to turn around a small company compared to a big one. 

When we talk about profitability, we need to consider processes, costing, marketing and admin – finding the bottlenecks in a company can help in optimising profitability.

Profitability by optimising the process

We all have processes that we implement. Think of them as little rhymes where we do certain things in a sequence. Business and side hustles are renowned for these processes/systems – and it helps to stay profitable. In some cases, these can get exceptionally complicated. 

I included 2 processes in this article as an example. Imagine we could get rid of some of the complicated hoops that we need to jump through. Here are some of the processes we can explore to make us more profitable:

  • Marketing and client acquisition – often, there are complex red tape scenarios before you can get to the client or close the deal.
  • Solutioning – the 80/20 principle can be applied by saying that 80% of the solution’s process is not actually important nor used. This is true for code, complex approval processes and others. 

In some cases, we cannot optimise the process. We can, however automate it – out of sight and out of mind. There are many different tools to assist us with this, including Zapier for software integration, Sage Accounting for automation of recurring invoices and/or setting up automatic payments from your internet banking. 

Standard operating procedures

Introducing standard operating procedures (SOPs) into your small business can save you time and money. Though big words, I use these in my small business by creating templates and automated responses to general requests and questions that I get. For example:

  • Software testing SOP – the standard way that bugs are logged
  • Request for a reset password SOP
  • Stock delivery – a standard form or online document to streamline the process

Profitability by numbers and pricing

I love the fact that people think that being Frugal means cutting expenses to the bone. I disagree with this notion. I believe we need to cut only on things that don’t add value. If it does, then keep it and invest in those things. Overheads often spin out of control for this reason. We believe we need all this stuff to make the service or product happen – but do we…? 

Another option for us is to push up pricing. Industries not price sensitive can easily push their price up, whereas others such as food, tourism and general work tend to follow the industry standard.

On the other hand, changing suppliers might make a difference to profitability. Imagine being able to cut expenses and still have the same product, quality and service!

Innovation

Imagine mentioning profitability and innovation in the same sentence! But, these days the internet and online software have made it easy, convenient and profitable to incorporate solutions into our current workflow. 

For example, we can use Sage for our online accounting software and include scanning receipts on the fly. We’re saving both time and money on finding all those slippies!

Cut unprofitable activities

Many companies start by cutting staff lunches, team-building events and “beer o clock”. Though not recommended, I find that companies spend a lot of money on things that have no prospects of working. For example, I have seen the gambler’s fallacy at work in software teams. The whole team keeps churning out code, without any code going into production. 

Maybe it’s worth stopping and rethinking what truly aligns with our business and our vision? 

Using marketing and advertising to make more money

I am vehemently against the idea to get funding to do marketing. Funding should be for inventory or something that will definitely turn a profit. But it does make sense to use marketing to boost your profitability. 

Think about economies of scale. If I have to cook one burger, it might take 40 minutes. If I do 20, it takes 50 minutes. The same principle can be applied to many costs such as IT infrastructure, making frozen dinners, or advertising on search engines.

I do encourage getting your message out there – and getting it out there to the right people can be hugely profitable.

Simplify your admin

I have a confession to make. I used to do my invoices in Photoshop. Imagine it’s the end of the financial tax year and I had to supply my accountant with all my slippies, invoices and paperwork. I don’t lie when I say she almost had a brain aneurism until I switched over to a good accounting software package.

The less admin you have to do, the more you can focus on the things that are actually important. 

Conclusion

Profitability is not an easy concept. But we tend to make things really complicated. 

And that doesn’t make sense. 

If you keep processes simple and innovate around the things that are becoming a challenge, you can make your business even more profitable.

Happy investing!


Money Local

Frugal Local runs his own company (Effectify). He does software development and helps small businesses and startups with digital solutions. He enjoys writing articles and simplifying complex things - such as the article you're reading!