8 Financial Management Strategies to Increase Profits. Entrepreneur MBA Podcast 3.16
Summary: In today’s podcast episode, Stephen Halasnik and his guest Ken Boyd discuss 8 Financial Management Strategies to Increase Profits. A lot of people believe that sales and profits go hand in hand; however, they do not. It is about the profit one makes, not the sales that are generated.
Financial Management Strategies to Help Increase Profitability
1. Cash Flow Profitability
For business growth, the company needs to have a financial plan. One important aspect of this plan is having a financial statement cash flow role form. This form consists of the beginning balance from each month, adding in cash inflows that are expected, and subtracting cash outflows (payroll, inventory, etc.). Once this amount of money is figured out then that ending balance for the month will then become the beginning balance for the following month. Forecasting this business plan is essential so that the company can figure out if they have enough cash coming in, and if not then where they could save money.
2. Formalize the Collection Process
Small businesses especially want to formalize their collection process, so they receive their money promptly. This process can be done by using an invoice to bill the company or person. When setting up the invoice for repayment, a great option is having the payment pulled right from their credit card so the business can ensure they will be paid. An extra effort a company can make is calling the customer and reminding them that their bill is coming up so that they are aware. Doing this makes the company look very professional and the customer base will see that.
3. Three Customer Metrics
When it comes to customer metrics there are three different categories:
The first metric is Customer Lifetime Value, which is the maximum dollar amount the business estimates a customer could earn overtime. So, this is representing the total amount a customer is expected to spend in the business during their lifetime and the company can estimate this for their financial planning. One example of this is car repair shops, when a new customer comes to a business and they are satisfied with the service, then they will likely come back for the remaining life that they have with the product.
The second metric is Customer Acquisition Costs, which is how much the business is spending on marketing and sales versus how many customers they are actively getting in their business’ door at a certain time.
The third metric is Monthly Recurring Revenue, which is based on income that the business can count on getting every month. This metric is mainly limited to those businesses that have a “subscription” model so it can be easier to predict their revenue.
4. Improving Customer Service in a Small Business
Customer service is especially important for small businesses and as technology grows, the business needs to keep up with it because their competition is going to find bigger and better ways to improve their business. For example, there are mobile apps or online ordering for almost every restaurant, and if it is easy to use and navigate then the customer will likely use that instead of calling. The bottom line is that your business can benefit by having different technological aspects in place because it will likely increase profits over time.
New start-up small business owners need to be able to increase their prices instead of feeling like they need to have products with a lower price. Then the business will not have to compete with low-cost priced competitors, and you can then strive to have the best customer service possible. If the price is increased but there is amazing customer service then the customers are going to come back and purchase a new product strictly off of the customer service.
5. Financial Management Dashboard
A financial dashboard relates back to the 3 customer metrics, and each business has to pick the best fitting one for their company. Owners can be overwhelmed with the amount of data there is, so that’s when the dashboard is important to keep sensitive information together. When looking at your business’ personal finances, you can run reports in QuickBooks that will show you your business’ savings account, profit margins, gross profit, accounts payable, working capital, net profit, balance sheet, etc. and put it on an excel sheet so it is easy to find and come back to. This will be beneficial for the business’s financial health because then all of the most important documents will be easily accessible to see and so everyone can be on the same page.
6. Improving Small Business Customer Relations
There are multiple ways to improve customer relations, one is by having short-term price promotions on items that could be bundled together. An example would be bundling sports equipment together so customers would not need to buy items separately, and this can help retain customers if they are pleased with their purchase. Another way to help improve customer relations is by having rewards programs and discounts, and social media can help assist with that. By making simple gestures like these it will strengthen relationships with customers and make them want to come back when there are pricing benefits for their needs.
7. Money Tied Up in Inventory
The main place where money can be tied up is in inventory because companies can tend to overestimate how much they need. So, the inventory status needs to be looked at to see how much inventory is needed to meet sales right at the beginning of the month before having to order again. There can be too much inventory invested and not properly accounted for, so businesses need to keep that in mind when it comes to budgeting.
Outsourcing is a great opportunity for businesses because hiring a third party to help with a task or automating it will take away the stress for the company. For example, having someone handle the payroll will be an advantage and can be cost-effective with technology too. When outsourcing it is always suggested to ask for receipts once the work is done so it can be properly accounted for.
By following these 8 steps you can help increase your business’s profits. The process of increasing profitability and financial performance can be daunting, but when broken down into these 8 steps the process becomes much more manageable and attainable for all businesses.
Guest Speaker: Ken Boyd, Accounting Accidentally
Ken Boyd is a four-time Dummies book author, including Accounting All-In-One for Dummies, and a frequent contributor at QuickBooks. His blog and YouTube channel links can be found at https://www.accountingaccidentally.com/
About The Host Stephen Halasnik, Financing Solutions
Stephen Halasnik is the host of the popular, The Entrepreneur MBA Podcast. The Entrepreneur MBA podcast’s purpose is to help small businesses get over the $10 million per year in revenue mark. Mr. Halasnik is the Co-founder and Managing Partner of Financing Solutions. Financing Solutions is a leading provider of Lines of Credit to small businesses and nonprofits
Mr. Halasnik is a graduate of Rutgers University and has an Executive Masters from the MIT Birthing of Giants Entrepreneurship program. Mr. Halasnik has started and built 6 companies over 25+ years with 2 of those businesses making the Inc 500/5000 fastest-growing list. Mr. Halasnik is a best-selling Amazon author on business and regularly tweets about his ideas about growing a business. You can also find Mr. Halasnik on youtube talking about Entrepreneurship.
Mr. Halasnik loves small business. He lives in New Jersey with his best friend, his wife Gina. Mr. Halasnik’s number one purpose is raising his two boys, Michael and Maxwell, to be good men.
About Financing Solutions Nonprofit Line of Credit
Financing Solutions, an A+ and 5 stars rated BBB company since 2002, is a direct lender that provides lines of credit to nonprofits and small businesses.
Financing Solutions nonprofit financing product is a great alternative to a traditional bank line of credit because it costs nothing to set up, nothing until used, and when used, is inexpensive. The credit line requires no collateral and no personal guarantees.
Nonprofit Organizations use their line of credit to help with emergencies or opportunities when cash flow is temporarily down (i.e. Payroll funding)
Please feel free to fill out the no-obligation, 2-minute nonprofit line of credit application here. The time to set up a credit line is when you don’t need it so that it is ready to be used, just in case.
Note: Financing Solutions donates 10% of its profits to various nonprofit charities