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  • Kimberly Stone

7 Ways to Improve Business Profits

There are many business management strategies out there to help businesses increase their profit margins and boost efficiency. Consider these seven fundamental ideas for saving time and money while making your venture more lucrative.

1. Develop tighter controls over billing. To speed up cash flow, reduce the time between delivering your product or performing your service and sending an invoice. Think about implementing semi-monthly billing instead of monthly billing, and send second notices more quickly.

2. Collect past-due receivables. Almost every business has past-due receivables. Create a list of steps to be followed for receivables based on their past-due age. Reach out to those who have delinquent balances to determine the issue and try to collect the amount due or negotiate a payment schedule.

3. Watch your payables. Don't be one of the many businesses that overpay vendors or suppliers due to sloppy accounts payable procedures. Go over these rules with your accounts payable clerk:

  • Don't pay vendors twice (or more) for the same invoice.

  • Don't pay for any goods that you return to a vendor; check the invoice to be sure an adjustment has been made.

  • Keep track of credit memo allowances you receive and subtract them from the next invoice.

  • Be sure to take discounts for early payments when they apply.

  • Don't pay for charges that are incorrectly included on the invoice, such as shipping charges the vendor agreed to pay.

4. Keep payroll costs under control. Payroll costs are a major expenditure for most businesses. Perhaps a more efficient facility layout or work schedule would result in reduced labor needs. Consider utilizing part-time or temporary employees and independent contractors.

Review employee classifications for workers' compensation insurance. Improperly classified workers can be costing you significant premiums. Review group insurance programs. Solicit bids for the programs every three years.

5. Monitor key indicators. Use your financial statements to give you important management information. Compare inventory turnover (cost of sales divided by average inventory) year by year. If turnover drops, consider it a warning sign and investigate further.

Compare your gross profit margin (sales less cost of products sold) from year to year. A decreasing profit margin may be a danger sign, so it should be checked as soon as it is noticed.

If you sell a number of different products or services, determine their individual gross profit margins. Give particular attention to low-margin items to see if it's still worthwhile to carry them.

6. Use prior financial statements. This key data can be used as a guide to prepare budgets and long-range projections. Actual results should be compared to these projections to highlight areas needing attention before any major problems develop.

7. Use your advisors wisely. Keep your accountant, banker, insurance agent, and lawyer informed about your business. These professionals consult regularly with many other businesses and can help you avoid pitfalls in making decisions.

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