When it comes to profit, there are only two columns in an income statement: revenue and expense. At the most fundamental level, if a business’ revenue is greater than its expense, then it is profitable.
Successful entrepreneurship means managing these two columns so that revenue is high and expenses are as low as possible without interfering with organizational efficiency.
Outsource what you can
As a small business, you do not have the luxury of staffing and maintaining specialized departments. Our global cyber-based environment has given small businesses the opportunity to hire temporary staff quickly and cheaply. Cloud-based storage systems let a business place most of their IT, sales and operating information on off-site servers.
Databases like Freelancer make it simple to outsource key functions to qualified staff. By outsourcing jobs, a small business drops costs associated with down time as well as payroll processing expenses and taxes, while still keeping the benefits of having robust support departments.
Market without overhead
Social media has opened up new opportunities for small businesses to market on the same level as large businesses. Traditional advertising can be expensive and, without a large capital outlay, may not be effective.
Instead, LifeHack recommends creating brand ambassadors. These people generally have large social media networks that you can tap into by offering free samples of your product or service. These ambassadors’ jobs are to try your product and talk nicely about it on Facebook, Twitter and Pinterest.
You can then pull these feeds onto your website and social media networks, increasing your marketing reach and brand recognition. All of this can be done with the cost of production and shipping.
Monitor your net receivables
Offer a discount for paying invoices quickly. This may seem counterintuitive since you are actually lowering your net revenue, but it will make you money in the long run. Earning money is one thing but collecting it is another.
If you sell $10,000 in product but do not collect for 90 days, your business can easily go under even though you are selling well. This shows the importance of cash flow. Poor cash flow can hamper your ability to deliver products, which decreases revenue or can force you to use credit, which adds an extra expense.
To make sure that you have money coming in consistently, place discounts and penalties of different net payment options. For example, offer a three percent discount when paid within five days or add five percent when paid after 30 days to help maintain a steady cash flow.
Know your deductions
If you do not know your deductions, hire someone who does. The IRS has a very robust website with almost anything that you need to know about tax deductions, assuming that you have the time to devote to reading it. Having the maximum allowable deductions on your federal taxes is an important way to reduce expenses related to taxes.
Some tax deductions reduce the company income from which the tax amount is generated. Others are incentive amounts that reduce the net tax. If you do not know all of the implications of your tax base, hire an accountant. It will pay for itself.