Small Business Profit Maximizer!

Finding the Cash Hiding in Your Business

Increasing sales is important to any profit enhancement plan. But cost cutting cannot be left out. In this video I cover the 3 rules for successfully cutting costs.

 

Increasing sales is important to any profit enhancement plan.  But cost cutting cannot be left out.  If you are operating on a 10 percent net profit margin, a $1 cost reduction is equal to a $10 increase in sales.

In order to achieve lower costs, you should perform a cost-cutting audit annually.  First, identify your biggest costs and assign them to cost centers.  Then use those centers to allocate the remaining costs.  Once you categorize your costs and understand their relationship to your business, you can implement cost cutting.  All companies attempt to do cost cutting, but they often fail.

Successful cost cutting requires you to follow three simple but painful rules:

1. Make cost cutting a continuous activity. Most companies have cost-cutting drives at intervals of several years, and generally only during business downturns.  In between, only a token effort is made to run economically.  You can win big by having all of your managers work on cost cutting every day.  Require a written report on their progress on cost reduction every quarter.  This not only reduces problems in bad times, but can substantially increase your cash flow during the boom times.  This is a much more efficient way to cut costs.  Crash programs tend to result in process hang-ups and quality problems because the measures taken are not thought out and are implemented in a hurry.  Continuous cost cutting gives you the opportunity to carefully test results and avoid false economies.

2. Cut the major costs first. It seems obvious to start where the money is.  Unfortunately, I have sat through countless meetings where the cost cutting applied to as little as one percent of the total costs.  Be creative!  Look for ways to cut costs that don’t affect efficiency or reduce your product’s quality.

3. Cut costs by eliminating, not reducing, activities wherever you can. As you examine each cost and cost center, the first question you should ask is, “Can we get rid of this entirely?”  The answer of course will probably be “No!”  You can jar your people out of that rut by rephrasing your question like this:  “Okay, suppose we were forced to stop doing it.  What would we do instead?  Would it be cheaper?”  Don't even consider your options for reducing the cost of an activity until you have convincing evidence that it is impossible to eliminate it altogether.

Finding the Cash Hiding in Your Business

In tough times or good times, tracking every dollar your business uses and making sure your cash is spent wisely will lead to more cash in your bank account. Here are some ideas that usually increase business cash flow quickly.

 

In my forty+ years of working with small businesses, just about every business owner that I have worked with has been surprised by the amount of cash that they are leaving on the table.  In tough times or good times, tracking every dollar your business uses and making sure your cash is spent wisely will lead to more cash in your bank account.  Making changes early on can be the difference between success and bankruptcy.  Here are some ideas that usually increase business cash flow quickly.

Increase sales

Almost every business is ignoring one sales area that is a goldmine—their current customers!  If the business owner works on nothing else, they should work on the following systems:

1. Improve your systems to increase your lead conversion rate. Your goal is to turn more of your customer contacts into sales.
2. Improve your systems to increase the order size by upselling. Create a list of products and services that go together logically and make sure your staff is trained to offer them to every customer.
3. Improve your systems to increase repeat sales. Develop incentives for your customers to shop with you more often.  Increase your communication with your current customers about new products and services you have that will solve their problems.
4. Improve your systems for customer referrals. Ask for referrals from your best customers.  Pick up The Referral Engine by John Jantsch for great ideas on getting referrals.

Increase your prices

The quickest and easiest way to increase your income is to raise your prices.  If you are worried about losing customers, do the math.  You will be surprised by how many customers you can lose and still make the same sales amount.  And most business owners find that they make even more money with less work.

Speed up your collections

Review your receivables now and every week.  Call every customer who is past due as soon as they become late.  There is no secret to collecting receivables—the owner just has to stay on top of it constantly!  Don’t let someone else’s cash flow problem become your cash flow problem.

Avoid receivables entirely by getting prepayments, larger down payments, or requiring payment at the time of delivery.  Additionally, speed up your billing cycle by billing weekly instead of monthly.  As a last resort, look into receivable financing.

Control your inventory

Money tied up in your inventory is money that is not in your bank account and money that isn’t working for you.  Examine your inventory and identify those items that are not selling quickly.  Get rid of these by lowering your sales price until they sell.  Remember:

• It is better to sell it today at a 10 percent discount than six months from now at your normal price.
• If it doesn’t sell at a 10 percent discount, it is better to sell it at a 25 percent discount today than at its normal price a year from now.
• If it still doesn’t sell, sell it at cost and reinvest the money into products that are selling for a profit.
• If you can’t sell an item at cost, selling it below cost is better than keeping it on the shelf and throwing it away in a couple of years.

Decrease expenses

A ten percent across-the-board cost-cutting approach probably won’t work.  Cutting advertising will probably cut sales, too.  So the proper method is to review all expenses line by line and look at ways to eliminate or reduce the cost item.  If you haven’t bid an item out recently, you are probably spending too much on it.

Control your outgoing cash flow

Ask your customers to supply raw material.  Explore just-in-time (JIT) inventory options.  As a last option, look into floor plan financing of your inventory.

Your suppliers have a stake in your survival, so they will often work with you if you can show them it is in their best interest.  Ask for longer payment terms, even if you have to offer to pay a slightly higher price (of course, keep an eye on your margins and decide if you can pass these costs onto your customers).

There are many other things you can do, but this is a great starting point.  Before you pay for anything, just ask yourself, “Can I live without this right now?”  If you can—wait!  Keep cash in your bank account for as long as you can.

My Business in in Trouble! What Should I do Now?

In this video I discuss what you need to do if you are working hard but making less. More importantly--how to avoid the problem.

 

 

CALLING ALL BUSINESS OWNERS!!

My book is FINALLY out! If you’re ready to reinvigorate your cash flow and increase your profit margins, you MUST read The 90 Day Profit Reset. It’s available now in print and Kindle versions from Amazon.

Get yours here >> https://amzn.to/32gCYfv

 

90 Day Profit Reset (What is it and who should use it)

Learn why you need this book, what is in it and why every business owner must have it. Click here for link to the book https://amzn.to/32jf3fM

 

 

The 90 Day Profit Reset

Why you must concentrate in the next 90 days on gaining your independence from reduced cash flow, shrinking margins and evaporating customer base.

 

 

IRS Finally Releases Payroll Tax Deferral Regulations

In this video I discuss the regulations, make recommendations on who should use the referral and who most likely shouldn't. Also discuss employer portion deferral options.

 

 

The Traits that Make the Highly Successful Exceptional?

After you watch this please let me know if think of something I left out. Thanks for your help.