All businesses share the need to
maximise profit. Whether those profits go into your own pocket, into the pockets
of shareholders or are earmarked to be ploughed back into the business, the
greater the profits, the greater the measure of your business success.
So how can you maximise your
profits? Once you have identified and measured your key profit drivers, you
should be able to develop strategies to grow them. So
the most obvious way to make your business more profitable involves looking at
ways to increase income – usually in the form of sales revenue.
But it is not the only way to
improve the financial wellbeing of your business. You could increase your
profits without putting on a single extra sale if you can decrease your costs.
Cost cutting needs to
be done carefully. Done wrong, and it will result in penny pinching that can
alienate employees and customers, and even make it look as though your business
is in trouble. The professional approach is to look at your competitors and
benchmarking your business to see where you can save money.
The forgotten costs
Making savings can mean many
things. Changing to more efficient lighting could reduce your energy bills.
Finding new suppliers who can provide the things you need at a keener price
night cut your monthly outgoings.
But there is a class of supplier
which is often overlooked on cost-cutting drives. Your financial providers. The
chances are that your business has borrowings, which can range from the finance
to buy your premises and equipment to various forms of funding designed to keep
your cash flow positive.
The cost of this finance might
not be forgotten – it will make a serious impact on your bottom line – but the
possibility of reducing that cost may be overlooked when you are thinking about
cutting costs elsewhere.
This may be because it is easy to
believe that your arrangements with financial suppliers are fixed, and that you
are tied in. Nothing could be further from the truth
You can change your financial
providers, just like any other supplier. And that means you can cut the cost of
one of the biggest drains on your profitability – your monthly repayments to
Getting a better deal on your
You may feel that business finance can have a
lot like firefighting. Any finance will do when you need to keep your business
afloat – but like any distress purchase, the lending you arrange in an
emergency will be expensive.
Having the right strategy and the right finance
in place before a crisis could help avoid the need for firefighting in the
So there are two ways to organise your finance
to maximise your profit. Plan ahead to find a better deal when you need it –
and switch to a better deal to replace your existing arrangements by
A clear view of your financial needs will make
it easier to plan ahead and to secure the funding you need at the lowest
possible rates and the most favourable terms.
Look at the operational challenges you face:
- Staffing costs
- Premises and
- Materials costs
- New technology
- New challenges
- The need for
marketing – especially online
- Obsolescence of
plant and equipment
- The need to fund
Once you have identified the particular
business challenges that you need to answer, you need to look at the most
appropriate type of funding for each one. It is rarely just a matter of
arranging a generic business ‘loan’. Each type of challenge can have a
Getting the right solution for any given
business purpose is vital because it means lower costs. For example, if you
need a new vehicle, you should probably
look at an asset finance solution. Leasing or HP will have lending secured on
the equipment itself reducing costs compared with a generic loan.
There is a wide range of specific financial
solutions designed for buying premises, for dealing with problems with cash
flow, for customers who pay late, for unexpected tax bills and more.
Once you have identified the financial
challenges, the next step is to identify the most cost effective financial
products to answer them. The key is to do this before your need for finance
becomes acute. Having the chance to shop around, to get the most
appropriate form of finance and even to play different lenders off against each
other to get the best deal can make major savings on the monthly repayments
your funding need will generate.
The benefits of planning ahead don’t stop with
reduced costs. When you need for finance as part of planned expansion,
you will already know exactly what that finance will cost, simplifying your
decision-making process. When an emergency does come along you have a lifeline
ready and waiting, and when you see an opportunity, you will know exactly what
it will cost you to grasp it.
Refinancing to cut your existing costs
realise that you have a business loan or loans with a high rate and repayments
you may be able to cut them by refinancing. Refinancing is simply the process
of replacing an existing loan with a new financial arrangement. The new loan pays off the current debt.
You will be
faced with a new debt with a new lender, but your new debt should have better
terms or features that are a better fit for your business, and which will
improve your financial position.
greatly in the interest they charge. By refinancing to a lower rate, and
perhaps to a more suitable type of loan, it may be possible for your business
to save on interest costs. However, you can also refinance your borrowing into
a longer term.This could reduce your monthly outgoings by giving you longer to
If you have
several loans running at once, you may be able to consolidate them into a
Of course, few people running their own
business can expect to be an expert in finance, so whether you are planning
ahead or dealing with some expensive decisions in the past you may find things
easier with some expert help. Business finance has moved on a great deal in
recent years. Getting the best deal is no longer simply a matter of calling on
your bank manager and relying on their generosity. The fact is that since the
financial crisis many banks are a lot less helpful to small businesses than
they once were. Fortunately, there are now many specialist and alternative
lenders who will be keen to do business with you.
Of course, not all lenders will be able to
offer the funding you really need, and only one will be able to offer you the
lowest price. The final step in getting the finance you need to build your
profits may be to call in a business funding expert who can look at the entire
business lending market to find the solutions that are right for you and your business.