With Christmas approaching, November is a great time to start thinking about improvements for next year – before you get too busy.
Try these ideas to get your profits soaring.
Get your pricing strategy right
Pricing of your product or service drives your profitability, so make sure you get it right and have regular reviews.
How to achieve the right pricing strategy
- Review all the costs associated with making or selling the product or service, and calculate the cost per item.
- Look at what competitors are charging to make sure you remain competitive.
- Know what your customers are prepared to pay – you may increase profit margin over costs if you're offering a high demand product or service.
- Understand your breakeven point, margins and markups so the selling price of all new items will cover costs and make profit.
When reviewing your pricing strategy:
- calculate your hourly rate to include non-chargeable hours if you provide a service
- do some market research to understand what your customers are prepared to pay
- if you're registered for GST, you need to make sure you include the GST amount to your total selling price
- keep an eye on your profitability – if you don't believe you can increase your sales price, the next step is to look carefully at your costs
- remember discounting your sales is selling at a reduced price – so make sure you understand the impact of discounting before you use this technique.
Review your cash-handling controls
Control cash within your business to reduce the temptation to steal - for employees or visitors.
How to review your cash-handling controls
- Look at all elements of your business where cash is involved – and note each one.
- For each cash element noted, review the controls and procedures to safeguard this cash.
- Make a list of the areas where cash handling procedures can be improved.
When implementing cash controls:
- have a petty cash policy in your business, and make sure it includes having two people present when counting cash to protect your employees – use our petty cash policy which you can access and use in our financial policies and procedures template
- keep cash receipts separate from cash payments – this will make record keeping more accurate and reduce the temptation to inappropriately spend business takings
- never leave cash on the business premises for an extended period – have a policy of banking regularly – daily banking is the best option.
Review forward orders
Understand what orders you have in your business so you can make sure you have adequate stock and resources to deliver customer orders on time.
Reviewing forward orders will improve cash flow and customer relationships.
How to review forward orders
- Review all current and future – even potential – orders for at least the next six months.
- Review stock holdings and check stock availability from suppliers.
- Check your cash flow forecast to make sure you'll have adequate funds to purchase stock.
- Review staffing levels to make sure you'll have adequate staff to meet orders and delivery timeframes.
During reviews of forward orders:
- implement a purchasing policy to help monitor stock purchases and related cash flow issues – if you don't already have one
- negotiate with suppliers if you're anticipating a large number of orders to help with your cash flow
- request a deposit or progress payments from your customer where a forward order requires large outlays of cash
- regularly review staff productivity and overtime to make sure your staffing will meet your forward order requirements
- don't forget to check annual leave applications against forward orders to make sure you have enough staff to complete orders.