In my experience, the majority of SME business owners maintain pretty good control over what they spend. Generally speaking, business owners keep a close eye on their bank account balance, only spending when and where they believe necessary. They really do appreciate that to improve bottom line business performance they need to live and breathe profit = revenue – costs.
When we start working with a business one of the first jobs we do is to get to grips with financials, including where money is being spent. In some cases we encounter businesses that are making good use of accounting systems. In other cases, financial control will amount to regularly checking their online bank account plus a few MS Excel spreadsheets to do jobs like calculating VAT.
If we want to improve bottom line business performance then we can divide the job into two parts – 1) reducing costs, and 2) increasing revenue.
Improve Bottom Line Business Performance by Reducing Costs
Even in businesses that make good use of financial reporting systems, there is often scope for reducing costs. Money can leak away on things like un-read / un-used subscriptions and ineffective marketing activities. We push our clients hard to justify every pound that they spend, challenging whether the expenditure will truly improve bottom line business performance.
In most cases the biggest fixed cost will be staff. Whilst there is a bit that we can do with non-staff cost reduction, the biggest savings come when we ask ‘which members of staff cost more than they contribute’ and vice versa. It’s definitely not the nicest of conversations to have, but to improve bottom line business performance means we have to do some cold, hard thinking.
It’s said that about 20% of the financial performance improvement can come from the cost side of the equation. This means that the remaining 80% of the improved financial performance must come from revenue – so let’s discuss that now.
Increasing Revenue to Improve Bottom Line Business Performance
We believe that revenue is a function of:
- Marketing – and the leads you generate.
- Sales – your ability to turn leads into customers.
- Repeat business – the frequency at which customers return.
- Price – the amount of money charged per transaction.
Anecdotally, we tend to find that small business owners have a pretty good idea of what they should be charging for their products and services. Some industries naturally lend themselves to repeat purchase, and others don’t – so it’s hard to offer one-size-fits-all advice here.
The areas that are often most fruitful for boosting revenue are marketing and sales. Simply measuring the number of leads generated by source, setting targets and monitoring performance against target is a great first step. Likewise, accurately calculating sales conversion rate and monitoring performance every month is essential to improve bottom line business performance.