Stephen, the owner of a CCTV business asked for my help with getting more sales.  When I visited them, they had a big office and a number of staff.  The business had grown to a decent size turnover but they were making practically no profit at all.

I realised then that their biggest problem was not sales, but management.  We sat down and spent just a couple of minutes looking at their annual accounts.

The Gross Profit (how much they make before paying for fixed costs like wages, rent, utlities etc) for the year showed that on average, they were making 30% or less per job.  Yet Stephen insisted that every job he quoted for was at a 55% margin.

This is where the turnover is vanity, profit is sanity phrase comes in.  The owner, Stephen, wanted to grow sales when the real problem was with his margins.  Something was going wrong on each job so that his profit was being whittled down from 55% to 30%.

If we had put lots of effort into improving his sales, it would have been more work at the same low margins, producing little profit for lots of effort.

Fortunately there was a paper trail to help us track down exactly where the money was going.  It turns out that many jobs were taking twice as long to complete as a result of the engineers having to fetch spares or tools from the office half way through a job.

The time being lost to these return trips was stealing all the profit from the turnover he was doing.

And profit is what pays your bills, while turnover is what you brag about to your friends!

A quick fix to his business involving better systems to make sure engineers had everything they needed took no more than a couple of days to put into place.

With gross profits at 30%, sales were just high enough to break even.  With the new systems in place, margins were up at 50% and set the business up to make around £143,000 profit.

If this is all sounds like jargon to you, the chances are you don't understand your own accounts either.

You might even be suffering from a case of turnover is vanity, profit is sanity!

Increase your profits - don't leave money on the table

Learn how to increase profit for your business with these 7 practical strategies.  Take 5 minutes to consider these 7 profit-boosting strategies – there's bound to be something in here that you can use today.

1. Increase Your Prices

It's all too easy to dismiss a price rise with a thought like, "my customers would all leave if I did that."

Yet whenever my clients have done this (and 95% of them have use it as a strategy) their profits have substantially risen.

Do the maths and work out what an extra 5-10% on your price would do to your bottom line profit.

2. Compare Quotes To Actual Time & Costs of Each Project

Many companies that do projects, like alarm or electrical installations, base the job price on a fixed quote.  If you don't carefully track the actual time and materials that go into each project like this, you're almost certainly losing a lot of money on some jobs.

3. Renegotiate Your Rent

While not commonly considered, most landlords would prefer a tenant on a lower rent than an empty unit.  Get into a constructive negotiation with your landlord and see if you can reign in the monthly rent.

4. Change Suppliers

Go back through all of your monthly spend and find new suppliers, or negotiate better deals with existing suppliers, so that you're getting the best deals from them.  You can normally save anywhere from 10-20% if you shop around and do your research well.

5. Sack Expensive Customers

You know the kind of customer that calls 3 times a week, spends half an hour moaning about your prices, fights every invoice, pays late and expects special favours?  They're costing you money.

Look at the profit per hour of your worst customers and get real with them – tell them you're not able to work this way with them this way, put up their prices or get rid of them.  But don't suffer in silence.

6. Use Processes To Eliminate Costly Mistakes

If you waste a lot of your time fire-fighting and dealing with issues, you probably need to systemise your business.  Systems eliminate mistakes before they happen, make life simpler for your staff and take the drama out of day to day business.

They're also a great way to increase profits, because when you make no mistakes, you're more efficient and make more profit.

7. Introduce A Higher-End, Luxury Product or Service

A clever way to increase margins in your business is to offer a luxury or specialist product that's attractive to the top 20% of your customers.  You see examples of this all the time when you open your eyes to it – car manufacturers offer GTi versions of their hatchbacks and make a real killing on higher margins from them.

Above all, though, you need to take some action.  Your business can increase profits, of that there is no doubt, but only when you take action…

In the same way that amputation might be the only way to save a patient, closing down an underperforming unit of your business might just save your business and lift profits across the board.

On the other hand, there's always more ways you can save money by reviewing your fixed costs, too.  As a director in a large business, many years ago I cut running costs from £28M per annum to £18.5M – but it followed a merger of two companies and there was lots of duplication and wasted effort.  Nevertheless, it was a huge cut of 33.9% from operating costs – a direct impact for the bottom line.

More recently I encouraged one of my clients to review their fixed costs and do a hatchet-job on them.  The big surprise was the mobile phone bill – he's cut £250/month from it without pausing for breath.  He's off now to find more savings to hit a target of £1,000 less per month before we next speak! 

His mobile phone bill savings, by the way, cut more than 50% off without any loss in service provided.  He just got onto a more modern tariff with a better deal, saving hundreds of pounds.

This is an easy and effective way to improve your profit margins right away.  Spend 20 minutes to review your costs – make a full list – then ask yourself these questions…

1. Can I do without it altogether?
2. Can I cut how much I need this (e.g. cut out personal phone calls)
3. Am I getting a good deal, or am I paying too much (like my mobile phones example)?
4. Can I share the cost with another business, or get this done another way?

You'll be surprised how much you can save.  I reckon most businesses can easily cut 10-20% from their cost base with a ruthless and honest review.

And remember, every £1 you take off your fixed costs is another £1 added to your profits – just like that.

They had allowed their biggest customer to get away with late or missed payments for so long that they were owed over £30,000.  They had not paid the rent for months either.

When their invoice factoring company pulled the plug on them, they went bust from lack of cashflow.  It was a slow and lingering death that caused a great deal of distress for all involved. 

Sometimes the quickest way to improve things in your business is to look for the symptoms of what's wrong.  Sloppy practice around invoicing is a serious illness for a business during a tough economy.  Collect your cash while you can – don't be the last one to ask for money!

Here's a quick check-list of some symptoms to check if your business is suffering from invoice-itus…

1. You often forget to send out an invoice, so you allow your customers to pay late, even when you've delivered your service or products.
    
2. You make lots of mistakes on invoices, which lets customers argue with you for a while, keeping cash that should be in your bank.
    
3. You feel embarrassed when chasing payments, so you are always the last person your customer pays.
    
4. You are constantly running with low cashflow, even though sales are OK, but you don't know how to change things.
    
5. You stick your head in the sand and hope it'll all be OK, too embarrassed to ask for help, you'll let it get worse before shouting "Help!".

The worst thing that you can do is wait for it to get worse before you ask for help.  No matter how bad it feels right now, it won't get any better until you start to do something different.

If you recognise any of these symptoms in your business, a free consultation with your business coach, the "profits doctor", might be the smartest move you can make…

Just before you get the link for your free professional accounts software, I'd like you to ponder if Accountants still speak in plain English, or if they have in fact learnt a special foreign language?

You know what I mean? – they look human, make human noises and talk in sentences littered with recognisable English words, but somehow, with a few rare exceptions, you just can't make sense of what they're saying…

They Probably Created The Accounting Software Too…

It comes as no surprise then, that accounting software can be so complicated for us mere mortals.  Sage in particular horrified me.  Rather than being user friendly, it seems to have been designed to be complicated and user-hostile, with lengthy training even for qualified accountants.

This doesn't matter if you have a great accountant looking after you (like my friends over at WKH, or the wonderful Rod Wilson, the Really Wicked Accountant).  But if you're a small business that does your own accounts, it's truly horrible.

In the past 10 years, most software has become much easier to use.  Business accounts packages need to catch up.  Especially Sage.

Last week I was excited to learn that Microsoft have entered the small business accounting world.  They are giving away, for free, a great package – Microsoft Accounting Express. 

It seems to do everything most small businesses will need, and with a familiar, friendly Outlook feel to it.  I'm not doing an extensive review here, but if you have no accounting software in place for your business now and run everything off Excel spreadsheets or in shoeboxes full of paper, download it and have a go.

I created an invoice within an hour of downloading and installing it.  It's really easy.

Say Your Prayers for Sage…

This same strategy by Microsoft, of giving away great software destroyed Netscape Navigator, the world's top Internet browser 10 years ago.  Microsoft's Internet Explorer is the clear number 1.  Microsoft Office destroyed WordPerfect and Lotus 1-2-3 by being far easier to use and offering great linkages between the programs. 

Netscape no longer exist, Lotus was swallowed up by IBM and WordPerfect was bought out by Corel, the graphics people. 

These were the software giants of their day and Microsoft out-smarted and out-muscled them.

I think that Sage need to really wake up and smell the coffee.  Microsoft wants their customers and has billions of pounds available to enter the market on a huge scale.  I just hope that Sage realise and do something useful about it, rather than sticking their head in the sand.

The Coach Gives His Verdict…

In the business coaching world, one of the first tasks my clients need to do is get control of their financial position.  This is a great, coaching friendly tool that impresses me because of it's power and it's free price tag.

Recommended for businesses without accounting software who feel the need for more than a shoebox or Excel spreadsheet.  Your accountant probably won't like it because it's free.  You will love it because it's so easy to use.

You can also upgrade it for £150 to the full version that gives you even more functionality.  But to be honest, for a small business this will be pretty much all you need.

Visit this link for your free copy or click on the image above – Download Office Accounting Express

DISCLAIMER!  I am not your accountant and on this page I have expressed a personal opinion in the form of a review.  Selecting software to run your business is an important decision and needs to be taken with the appropriate advice.  Obviously I will not accept any liability for your accounts or business systems as a result of this article!

Look at the money side of this – would you prefer to have £50K profit from £1M turnover or £200K profit from £250K turnover?

Obviously it feeds the ego more to say "I run a £1m business", but it feeds the family more if you take £200K profits!

I hope that now you don't just want to increase turnover!

Here are 5 great methods to dramatically increase your turnover AND profits…

1. Make more with every sale you make – there are lots of ways to do this, but offering some value-add services or extras will encourage people to buy more.

2. Increase your price to reflect the quality of your service.  If you charge less than your competitors but give a better service, you're too cheap.

3. Create a referral system to generate more new business from your existing customers.

4. Make a list of your services to give your customers – that way they'll know about all of your services – they can't buy it if they don't know you do it.

5. Improve your sales process and/or get some sales training.  More sales from the same enquiries = more profits.

You will be amazed just how much you can increase your turnover and grow your profits with these ideas – but only if you take action on them.

Companies I've worked with use these methods among others to grow by between 30%-300% every year

Turn over a new leaf and try something new.  It's exciting to do something different in your business – let the excitement grip you, try it out.

If you've found this post useful, you may also want to read How To Increase Profit.