Small Business Profitability Improvement – Where Do I Start?   

By: Ken Lewellyn, CBI

Pull out the last 12 months P&L statement.  If you don’t have one for the 2009 year, that in itself, is a problem.  Within a week or so of each month-end, you should have a P&L.  If you don’t, make it a priority.  And when you get it, don’t just glance at it and put it in a drawer.  Look at the numbers to see if anything is out of the ordinary.

But…back to our current issue – profitability improvement.  Take your year-end P&L and look at your revenue – where did it come from?  Was it up or down?  Did particular market segments go up or down?  Did particular customers go up or down?  If so, why?  Is there an opportunity to get more business?  The key here is to know and understand your customers.  If one segment or one customer is growing, capitalize on it.  See if you can do more with them.  See if there are other businesses in that growing segment that need your services.  Maybe your advertising dollars would be more effective targeting that market segment.

The next step is to review your expenses  Take your P&L, and go right down the list.  Look at each category and see if you can reduce that expenditure.   Look for alternative ways of accomplishing whatever you are paying for. 

For instance, maybe you are spending a lot on employee mileage reimbursement for them making deliveries to customers.  Consider alternatives such as using a company vehicle or outsourcing deliveries.  Sometimes it makes sense to mail something, even if it only goes a couple of miles.  The time saved could be enough to reduce labor costs elsewhere in your organization.

Review things like insurance.  Can you get the same coverage for less?  Is the coverage the correct amount?  Are you paying insurance on vehicles or people that are no longer there?  What about rent?  Can you move to a less expensive location?  Or can you sub-lease excess space?  When is the last time you looked at other suppliers?  Are you paying more than you should be?  Look at expenses for phone services (land and cell), web hosting, and advertising.  Is your advertising generating new business or should it be cancelled and moved to another type of advertising?
Has your organization’s payroll expanded faster than your sales?  Is everyone busy, or are you paying 40 hours pay for 10 or 15 hours of work?  Look at changing what people are doing in order to make the organization more efficient.  Look at combining duties.  If you have a receptionist that is really only busy about 15 hours a week, and you have an administrative assistant that is only busy 20 hours a week, could one person do both functions?  Can you outsource some functions?  You may be paying $40,000 a year for someone to do your books, when that could be outsourced for $20,000 per year. 

The key is to look closely at each expense.  Obviously, don’t spend time on very small expenses, but focus on expenses that can have an impact if you reduce them.  You’ll be surprised at how much you can save if you get serious about it.  Just don’t be foolish.  Don’t spend a dollar to save a dime.

Tennessee Business Services serves small business owners by offering services such as bookkeeping, taxes, IRS representation, business valuations, business turnaround consulting, sale of businesses and franchise advising.  Lewellyn is one of six business brokers in Tennessee to hold the Certified Business Intermediary designation, awarded  by the International Business Brokers Association.  Tennessee Business Services is located in Hendersonville, TN and can be reached at www.tnbizserv.com,  info@tnbizserv.com, or (615) 400-2150. 

The International Business Brokers Association is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of a business brokerage and mergers and acquisitions. IBBA has 1,950 members worldwide, with corporate headquarters in Chicago, Illinois.