How do you define business success? There are many metrics that business owners employ, but for most, profitability is king.
Simply put, profitability refers to the business’ ability to produce more revenues than expenses.
A high level of profitability is needed for any business to grow, or to remain competitive within its industry.
So what are some of the ways in which your business can enhance profitability? Consider a few tried-and-true tactics, including everything from tax planning to full-on business reorganization.
Form an LLC to Avoid Double Taxation
The legal structure of your business can have a direct impact on the taxes you pay… and thus, on the level of profitability you can maintain.
For example, running your business as a corporation puts you at risk for double taxation on your profits: You’ll pay taxes on your corporate tax returns, and then again when you claim the income on your personal tax return.
Naturally, a double portion of taxation can really erode your profit margins.
Thankfully, there are other business structures that allow you to avoid double taxation, particularly the limited liability company, or LLC structure. (A Sole Proprietorship or a Partnership will also help you avoid double taxation, but these are really only options for the smallest of companies.)
Learn how to form an LLC in Texas or the state of your choosing, and you may find that it’s an easy way to minimize the taxes on your business profits.
Take Advantage of Tax Deductions
Speaking of taxes, whether you have an LLC or some other type of business, there are plenty of deductions you can take that will decrease your overall taxable income.
Again, reducing your tax burden is one of the most direct ways to increase your company’s profitability.
A tax professional can highlight specific opportunities, but some of the most common and meaningful deductions include:
- Home office expenses
- Office supplies and equipment
- Phone and Internet expenses
- Travel expenses
- Business startup costs, including organizational costs associated with forming the LLC
Taking advantage of tax deductions is crucial for streamlining profitability.
Set Clear Goals
Beyond tax strategy, there are some basic leadership/administrative tasks that can put your business on a path toward improved profitability.
One thing that any leader can do is get all stakeholders on the same page, aligned with a particular profitability goal.
What does this mean?
Consider bringing all managers or senior leaders into a meeting, where you brainstorm a reasonable goal for increasing profitability… say, 10 percent within the next 18 months.
Document your goal, and invite everyone in the company to share ideas for achieving it. Schedule regular meetings to check in on these efforts, monitoring progress along the way with certain time tracking statistics.
Analyze Your Financial Statements
It’s also wise to spend some time simply browsing your financial statements, paying careful attention to your documented profits and losses.
Taking a good, hard look at where money is coming into the business, and where it’s going out of the business, can potentially help you identify some processes to streamline, contracts to renegotiate, or some profit centers you can tap further to help you better understand revenue vs cash flow.
Every business has a series of processes, some of which may be formal and standardized, and others of which may be informal.
Take some time to write down your processes, map out the steps, and identify any unnecessary or wasteful steps.
Consider the tenets of lean manufacturing, which hold that any process or action that doesn’t provide direct/real value to the consumer is excessive and wasteful. By removing these steps, you can ensure more efficient and profitable teams.
Reorganize Your Space
It’s possible that you have inefficiencies built into your physical spaces.
Spend some time walking through your office building to look for areas of inefficiency.
For example, is your break room located somewhere that takes a lot of time to access from your sales floor?
If so, your team members may be losing a lot of productive time just walking back and forth from lunch.
A reorganization won’t open up new profits overnight, but over time, it can make a real difference. Any small improvements to your business efficiency will accumulate, creating real value.
Invest in Marketing
Marketing dollars will initially show up on your balance sheet as losses, but over time they can yield real gains.
For example, if you successfully market upselling and cross selling opportunities, you might be able to significantly increase the value per transaction or the value per customer.
These may represent substantial improvements to your overall business profitability.
One final option is to go up on your prices or fees.
While this can sometimes backfire, causing customers or clients to balk, a small price increase can provide real opportunity to grow your profitability.
This is especially true for products where your expenses remain steady.
The bottom line: Every business wants to see its profitability levels increase.
Thankfully, there is no shortage of ways to achieve that goal. Use these tips to boost your own business profitability.