Improve your Bottom Line with These 3 Simple Steps

5% here, 5% there, and then another 5%, and suddenly, you may have a 50% improvement in your bottom line.  The compounding nature of your P&L statement can work for you in potent ways with the proper focus and attention.  Sometimes as business owners, we get bogged down and worn out.  I’ll suggest a mindset to empower you and highlight the outcome that will have a lasting benefit.

 

“The compounding effect refers to the way in which small changes in a financial metric can have a significant impact due to the effects of compounding. In the context of a P&L statement, this means that even small changes in revenue or expenses can have a big impact on the bottom line,”  said ChatGPT.

 

First, increase gross revenue by 5%.  This is the most straightforward of the three steps.  It’s the most fun, and many options are available to any business.  What is your pricing strategy?  How is your customer retention and acquisition performing?  Maybe the idea of a 5% across-the-board price increase feels too much.   But think about how you might mix some of these strategies.  Increase some prices, bundle services together to increase average sales, or lower prices to increase volume.  How do you increase the perceived value of your offering to support premium pricing?

 

Suggested mindset:    Excitement. Have fun, be creative, and lean into all the benefits you provide

Business impact:         Growth

 

Second, and this is the most complicated of the steps.  Yet, if you can do this effectively and routinely, it will set your business apart.  Reduce your cost of sales by 5%.  Successfully focusing on your cost to provide a given product or service with more efficiency will set the business up for longer-term success.  How much re-work are you doing?  How carefully do you track the cost to deliver (including but not limited to delivery) your product or services?   Are you using the right technology, are there services that you can outsource, and are you partnering with your suppliers to get the best value and price?  Are you tracking your time and allocating those costs?

 

Suggested mindset:    Curiosity.  More questions, more clarity, and thinking outside the box

Business impact:         Efficiency

 

 

Third, this is often challenging, and it brings immediate dollar-for-dollar results to your bottom line.  Reduce overhead expenses by 5%.  How often do you review your expenses in detail?  How do you assess if the expense is necessary and in alignment with the business operations?  I have found this area to need multiple conversations with many business owners.  There are many transactions, and often, non-cash compensation is hidden here.  What is non-cash compensation? Perks for the owner and giveaways to the staff.  Personal travel is sometimes mixed with business travel; subscription services for personal use are on the corporate card.  Team meals and events add up quickly and may foster less discipline in tracking and monitoring expenses.  The challenge is to balance the flexibility of being a small business owner with the legal and business ramifications.  These perks can have surprise tax implications, and by negatively impacting the bottom line, they reduce the value of the business if you want to sell or bring on investors.

 

Suggested mindset:    Professionalism.  Professionals are accountable and consistent.

Business impact:         Clarity

 

Try it, and let me know how it goes.  I’m here to help.  Three simple steps!  It doesn’t mean that it is easy.