Owning a business is one thing but making your business more profitable can seem like an entirely different hoop to jump through. Making your business profitable is a different skill than actually running your business—and that may be why you’re struggling.
The truth is, increasing your profits takes an effective plan and strategy to know what to fix to start making more money. But to get that plan together, you first need to understand the basics of small business finance and what levers you can pull in your business to increase your income without increasing your expenses.
Similar to scaling your business, making your business more profitable is all about creating efficiencies in your business and using systems to improve profits. Making a profitable business doesn’t mean you have to grow either!
Step 1: Fix Your Relationship With Money
Our relationship with money says a lot about how we manage it and what we do with it in business. Money mindset is important because it sets the foundation for how we do pricing, money management, and overall business operations.
While that feels very woo-woo and maybe even a bit silly, the truth is that most people have a really hard time talking about, dealing with, and managing money because of emotional hold ups about cold hard cash.
If you have a bad relationship with money, you’re not going to charge the right amount of money for what you do, not going to see what you have to offer is worth it, or even not put yourself out there to really build a profitable business.
Your struggles with building a profitable business may stem all the way back to your earliest experiences with money. How we saw money being handled from an early age says a lot about how it’s handled in our adult lives and as business owners.
It may sound easy, but changing your mindset about money is actually the key for most entrepreneurs to turn a lackluster business into a profitable one. It means working on the way you think about money, getting determined and disciplined, and really tackling what needs to be done to reach those goals.
Trust me, it’s an ongoing process. Despite the fact that my job as a CFO is to help people get better at money, it’s sometimes even difficult for me to talk about my own money mindset!
The best way to heal your relationship with money is to get clear on what you want and that your worth as a human being has nothing to do with what you earn. There are a lot of great books about how to improve your money mindset to start with too.
Step 2: Start Tracking Your Money
Most entrepreneurs that struggle with money don’t properly track their finances. Setting up basic financial systems in your business will give you an idea of what’s happening with your money and help you stay on track towards being profitable.
You can start with the top three financial reports all entrepreneurs should know. After all, if you have no idea what the financial health of your company is, how can you make your company profitable?
Time tracking reports
Most business owners view time tracking reports as an HR thing rather than an essential part of managing their finances. But time tracking reports can tell you where you’re spending your time, wasting your time, and what the most profitable use of your time in your business is. If you find that time is your most limited resource then it’s important to find areas in your business where you can be spending your time in a profitable manner.
Profit loss statement
Your profit loss statement is another great report to use to monitor your income statement, revenue cost, and expenses over a period of time. You can use it to get an idea of where money was made or lost during a specific time period. It can also be used to show how sustainable your business is and if you’re not making enough money.
Cash flow projections
Cash flow is the money that flows in and out of your business. Although it’s not used to measure your businesses profitability, your cash flow statement can provide you with great insight into managing business expenses and how you’re paying for them as well as tell you how much cash you should keep in emergency savings, which can affect your profitability.
Step 3: Start Charging the Right Amount
Another reason you may not be making enough money for your business is that you’re simply not charging the right amount for your products or services. It all goes back to your relationship with money and mindset about what your products and services are worth.
Undercharging your products or services will directly affect how you cover expenses and the cost of doing business. If you aren’t correctly charging the right price, you could be making negative money or not making enough money in your business.
Signs that your business isn’t profitable because you have the wrong pricing include:
- You have changed prices in years
- You struggle to sell high priced products or services
- No one pushes back about your prices
- Your basic offer gives way too much value for the price
- You struggle to fulfill promises to clients
- You routinely offer discounts or negotiate your price down to get enough sales
There’s also how you structure your offerings that can impact your profitability and cash flow in your business, like doing per-project based billing or retainers. Digging into your pricing strategy and structure can help you turn your lackluster business into a profitable powerhouse.
Step 4: Take Control of Your Expenses
Another reason you may not be making enough money is because you’re spending too much money. As a business owner, you should know what you’re spending and what you can cut out in order to turn expenses into profit.
Part of measuring your small business financial health is creating a plan that properly monitors your expenses. If your expenses are out of whack, your profits will be, too.
Expenses can quickly balloon out of control, especially if you’re not clear on how you’re growing your business, are in a stage of experimentation, or if you’re not keeping tabs on your expenses routinely.
A quick fix for out of control expenses is to review your expenses in your business and cut anything that’s not working, not being used, or unnecessary. Tracking your expenses is much easier if you have an accounting system set up but you can get started by reviewing business bank statements.
Step 5: Take Control of Your Cash Flow
Depending on what your cash flow looks like, you could be faced with a cash flow issue rather than a profitability issue. Like we mentioned earlier, cash flow and profit are often confused with each other but they’re not the same.
If you’re struggling to pay expenses on time or pay yourself in a timely manner, you probably have a cash crunch issue. If it’s a routine problem, it can cause your business to be less profitable because you miss opportunities to make money because of missed timing.
Getting control of your cash flow requires that you have a cash flow projection set up in addition to other basic financial reports about your business. A cash flow projection can help you anticipate trouble before it happens and get in control of the flow of money in and out of your business.
Step 6: Get a Cash Cushion for Emergencies
Every business goes through bad cycles and that’s completely normal. However, if you find yourself in a temporary setback and don’t have the means to navigate through it, you may have an issue that puts your profits at risk.
Every business should have the proper contingency planning and security measures in place for how to handle temporary setbacks. Part of that includes having a cash cushion that will help you cover unexpected expenses so you don’t miss opportunities to make money.
Saving up an emergency fund in your business helps a lot when you do face a time of stress or a business setback. Having a cash cushion allows you to be financially prepared to handle anything that may come your way—and keep operating so you stay profitable!
Get Your Financial House in Order
The good news is making your business more profitable are all solvable problems, it just takes the right resources. If you have money coming in the door but not enough left over in the end to pay yourself, it may take some restructuring of your plans and systems.
Learning more about financial management basics for your small business can help you tackle these problems and make a profit. Most business education out there is designed for accountants and corporate officials, not small business owners. I created my course, Not Rocket Finance, to help entrepreneurs get actionable and set up basic financial systems to make their businesses more profitable.
The first step is to start with a small business financial health check to see what’s going on with your business finances and how profitable your business really is—because if you’re like most entrepreneurs you’re not exactly sure! Download my free guide to get started building a more profitable business.