If you want to improve profitability in your owner managed business, it’s important to strike the right balance between keeping the cogs turning and realising your ambitions.
A bit of forward planning can do wonders for your bottom line. Here are our top tips for boosting your profit margins.
How owner managed businesses can improve their profitability
1) Raise prices
One way to improve profitability is by managing costs, and looking at your pricing is the perfect place to start. With inflation at a high and the cost of doing business rising, you’ll likely need to charge more to keep up — but it’s good practice to regularly review your pricing anyway.
While it may be tempting to sell low to maximise sales, you’ll need to consider higher price points to achieve bigger profit margins. You don’t want to put customers off, but raising prices is a great way to boost your bottom line.
3) Monitor your finances
You’ll also need to monitor your business performance carefully. Keeping an eye on your expenses and producing regular cashflow forecasts will give you a greater insight into your finances. As a result, it’ll be easier to spot opportunities for growth and create realistic budgets.
With your finances in check, you can ensure you put enough money aside to cover your tax obligations. Doing this will make it easier to meet deadlines and reduce the risk of incurring late payment penalties.
Many owner managed businesses find they don’t have the time to closely track financial performance on top of their other responsibilities. If that’s the case for you, working with qualified bookkeepers and accountants can help you to manage your finances and your time effectively.
4) Cut down your tax bill
Are you making the most out of tax allowances and reliefs? If not, you might be paying more tax than you need to. Tax efficiency is essential if you want to improve your bottom line, but it can be complicated to navigate.
Your accountant can advise you on how to use the tax reliefs, allowances and exemptions available to you. If you run a limited company, it’s worth looking into corporate tax planning services to reduce your corporation tax bill.
5) Do your research
A bit of in-depth market research can also help you improve your profitability. Look at other businesses in your industry and how they’re performing. What do other companies offer that you don’t? Can you learn anything from their mistakes? They may be your main competition, but they can also help you approach things from a different angle.
You could consider expanding your market, too. Maybe you want to explore another industry, or you’re thinking about offering your services in a different part of the country. Looking at market trends can help you work out how to grow your business in a sustainable way.
6) Focus on sales
If you want to improve profitability, one option is to increase sales. For some owner managed businesses, that may mean encouraging existing customers to buy more. Or you may prefer to focus on marketing so you can attract new customers.
You should look at every aspect of your offering. Where do you make the most money? Who are your most loyal customers? Are any of your products or services more trouble than they’re worth? Rethinking your sales strategy can help you focus your efforts in the most profitable places.
7) Create a business plan
Ambitious owner managed businesses need a solid strategy in place if they want to continue to grow. We recommend drawing up a business plan to help you stay on track.
A well-thought-out business plan will help you to identify and track key performance indicators (KPIs), create realistic targets and spot areas for improvement in your business. Having the numbers to back you up can also come in useful if you need funding from investors and lenders.
Want to improve your bottom line? Get in touch to find out how owner managed businesses can improve their profitability with Libra.