Starting a small business isn’t always difficult, but keeping it running longterm is where the real challenge is. According to the Bureau of Labor Statistics, as reported by Fundera, about 20% of all startups fail within their first year. By the end of the second year, 30% of those small businesses will have fallen. Approximately 65% of all those businesses can live to withstand a decade, leaving only about 25% making it past ten years.
These figures are pretty high, and for anyone who wishes to start a new small business, it’s important to consider some of the reasons that make such businesses fail at a high rate. Before we delve deeper into some of the most profitable tips and tricks to incorporate in your small business, let’s first take a quick look into the top reasons why small businesses fail.
Top 3 Reasons Small Businesses Fail
Not Investigating the Market
You should always test the waters before committing to do something. Likewise, you shouldn’t start a business without knowing how exactly the market will react to your products or services. Conduct a quick survey and gauge your survival rates based on the results you get and the consumer’s feedback.
Apart from looking at your potential market, consider monitoring your competitors. How are they running their business? Is their venture successful, or is it failing? What are some of the gaps and avenues of improvement that you’ve noticed? Failure to investigate the market thoroughly before you launch the business will open you to unforeseen challenges.
Lack of a Business Plan
One of the main things that causes many startups to fail is the lack of a business plan. A solid business plan is a realistic outline of your business goals, how you wish to achieve them, possible challenges, and solutions. You shouldn’t rush while creating your business plan, as you need everything to be as realistic as possible and based on your research.
Failure to stick to the business plan is also another factor behind the fall of many startups. Do not deviate from the initial plan, as this is a surefire way to open yourself to more complications. However, there are instances that may necessitate the need to change your business plan mid-way—more on that on the next point.
Even though you should strictly adhere to your business plan, you should not be too rigid to tweak and change it, should the need arise. Do your best to stay ahead of the trends and constantly monitor the market to know if there are plans that may need to be changed. Should your strategies need any major tweaks, more so involving your budgetary allocations, you’ll want to look into rethinking your entire strategy again based on the figures.
Although there are many other reasons that may contribute to the failure of a small business, these three are, in most cases, the biggest factors to watch out for.
Now let’s look at the five things to consider to boost your company’s profits:
5 Tips to Increase the Profitability of a Small Business
Sales alone aren’t the only way to measure the success of your business venture. The true measure lies within the profit margin. While it is a no-brainer that more sales add to your total profit, this isn’t entirely the case. At times, without the right strategy in place, more sales may only generate insignificant profit margins and, at times, losses.
So how can you keep your profit margins higher? Here are five strategies to fatten up the bottom line:
Add New, Related Products or Services
Do your current customers need and use any products or services closely related to what you currently sell? Do you have clients who always keep asking about a particular product or service you do not sell? Well, maybe the time is nigh for you to stock up and offer those related products or services.
Keep track of all the products and services that your customers ask for and then conduct market research. Never skip the market research phase, even if you’re just adding a product to your line. Confirm how widespread the need for such a product is and whether or not you stand to profit if you stocked up on it. You wouldn’t want to invest a lot on something to find out later that only a handful of people are interested in it.
Automate Business Systems
One of the best ways to improve employee productivity, boost efficiency, and reduce operational costs is to automate processes and business systems. As a business leader, you need to identify all the processes and procedures you can automate to save on costs while boosting efficiency. You can also guide and train your employees on making the most out of the automations to increase profit margins.
You can also improve employee productivity by taking them through training courses to help them understand how to use automated processes and learn new tricks on how to boost their efficiency. All this can be done at their convenience as there are numerous online course platforms that can offer training lessons to your employees without eating up business hours, and they can learn at their own pace.
Some of the processes that you may consider automating and training your staff on how to do efficiently are:
- Lead generation
- Scheduling (Appointments, employees, etc.)
- Marketing processes
- Payroll processing
Manage Your Costs
Gross profit is achieved by getting the total amount made, then subtracting the operational costs. Once you identify where much of your operational costs go, try to manage them better, and cut out any irrelevant costs that may reduce your profits. One way of going by this is to cut wastage, e.g., ensuring that all electrical appliances that you’re not using at the moment are turned off.
You should also strive to look at your crucial cost areas such as the rent, licenses, supplies, production costs, etc. Set a plan for each of your key cost areas and always keep the costs to the minimum. There are variables such as supplies, premises, etc., which you may look into. Compare the prices of different suppliers and go for the ones that are a little cheaper, as long as they do not sacrifice the quality of the products.
Seek Repeat Sales
You can increase sales and profitability without incurring any significant costs to your marketing budget. This can be done by investing much in getting repeat sales, this is how to improve business profitability. You can easily get repeat sales by following strategies such as:
- Satisfying your customers – The easiest (and cheapest) method to keep your customers coming back to you is to offer them unmatched customer service and leaving them fully satisfied.
- Through offers and discounts – You can also offer incentives for your repeat clients, promising to give them a discount on their next purchase, having offers on selected products for a specific timeframe, and so forth. This is an excellent way to compel the customers to always come back to get your products (or services), eventually increasing your profit margins.
- Staying in touch with existing customers – You ought to devise a way to collect your customer data so that you can use it to keep in touch with them. By doing so, you can easily create repeat and loyal customers who can purchase your products, as you seek to offer them more incentives to become your regular clientele.
Profitable start up businesses collaborate! An effective but often overlooked strategy to promote your business and increase your profits is through collaboration this is another way how to improve business profitability. Is there another business similar to yours that meets different needs? You can partner with them. This can be as simple as promoting each other’s business through newsletters and endorsements or through operational collaborations, share-costing certain aspects of the business such as utilities, supplies, and other logistics.
Mergers are also popular methods that businesses use to help them remain relevant. Through mergers, two companies pull their resources together and operate as one entity targeting a bigger customer base and with more capital ‒ opening doors to more profits.
Now more than ever, creativity is crucial if you wish to become profitable. Most profitable small businesses audit expenses and determine the costs you can cut down on or get rid of entirely. Furthermore, it would be prudent to embrace technology and automate all the key operational procedures to help improve efficiency. A great example of integrating technology to boost business profitability is the new Sales Dashboard launched by JobNimbus and you can learn more about it here.
Consider developing your employees by bringing them up to date on the latest business trends and how to use the automated systems. All these, you can learn at your convenience through some of the best online learning platforms and run profitable start up businesses.