How To Restructure A Company To Increase Profits
The golden ticket in business is to figure out a way to increase profits without having to increase revenue.
Speaking to a variety of business owner groups virtually or in-person, owners want to know the “secret” to generating higher profits while selling the same amount of product or service.
It is straightforward: the less you spend, the more you keep. The more you generate, the more you can either spend or keep.
That’s about it.
As with most things in life though, the way you structure your business accounting can provide some powerful efficiencies that can lead to better outcomes.
Here are three systems that we have embedded into our business workflow to help ensure that we have healthy profit, while also working to pay appropriate taxes, and reserve cash for rainy days.
First, subdivide your bank accounts. If you are running your business from just one or two bank accounts then you are in a state of constant temptation to spend money that may not be yours. Just because cash is in your account does not mean it is yours.
Some of that cash is for debt payment, taxes, payroll, reinvestment, and other responsibilities. If all of your cash is kept in one account bucket, then it all looks like it belongs to you. Subdividing your bank accounts (we have nine!) will allow your mind to see where the different dollars are to go.
Call me crazy, but we actually get excited when it’s time to pay our quarterly estimated taxes knowing that we have done the hard work of setting it aside.
Second, track the ABC’s of your business. The A stands for your cash Accounts. The B is for Bookkeeping. The C is for Customers.
Each week on a simple spreadsheet, you should record the balances of your accounts. It allows you to watch the flow of cash in and out of your business, and to make sure that each of your accounts is being funded at the level of the budget that you have set for your business.
Tracking your accounts each week allows your business to “speak to you” and tell you where your business is thriving, or where it is struggling.
Each week you should also be tracking on the same spreadsheet your bookkeeping numbers, particularly outstanding receivables from your aging report, and any known payables due from your business to others.
Finally, it’s a great idea about once a month to run a calculation of the number of days of cash you have on hand at any given time. It’s a calculation of actual cash, known receivables, payroll and payables in-and-out in the next 30 days, and number of working days in a month.
We have a calculator that we have built that allows us to see what that number is at any given time.
Jim Lewis, owner of Vision Stairways And Millwork, talks here about how implementing these practices allowed him to grow his profits while his revenue actually decreased!
We have put together a webinar tomorrow Tuesday, October 13th at 3pEST/12pPST and will be walking you through each of the three steps I just mentioned; subdivision of bank accounts, tracking your weekly ABC’s, and determining your cash runway.
Registration for this webinar Masterclass is free here at bopwebinar.com
Scott Beebe is the founder of Business On Purpose, author of Let Your Business Burn: Stop Putting Out Fires, Discover Purpose, And Build A Business That Matters. Scott also hosts The Business On Purpose Podcast and can be found at mybusinessonpurpose.com.