*transcript formatted from original video (watch video for full version)
A great way to improve cashflow is by improving your net income on the income statement.
The first thing you need to focus on is improving your gross profit margins.
The top line of your income statement is your revenue and depending on the different sources of revenue in your business, you’ll likely have a few different line items. Then, looking at direct costs, your costs of goods sold – these costs are directly allocated to your revenue as it’s produced and as you sell it in the marketplace.
Let’s take a look at some of the things that you can do to improve gross profit and then we’ll focus on your overhead expenses and how you analyze those.
Look at all your suppliers.
Especially given today’s tight marketplace, you want to make sure that you have suppliers that are going to deliver what you need to satisfy your customers while still looking at where you can reduce costs.
Look at your processes.
Make sure you’re efficient in how your product or service is flowing through your operations.
Are there any bottlenecks in a particular process? Is there an area of that process where a lot of mistakes are made? Analyze the entire process and see what you can do to improve its efficiency.
Make sure that you’re allocating the labor costs for yourself or any other owners that are involved in that process of delivering the product or service to the marketplace.
Many times the owner is directly involved with producing the product or service. And we forget to allocate that owner’s costs directly to the labor. It’s important to do this now so when it comes time to replace yourself, you don’t have a distorted view of what your true gross profit margin is.
Analyze your prices.
This is a hard thing for a lot of small business owners. I want to challenge you to think about increasing your prices because I’ve seen many times where a service or product is underpriced.
Look at your competitive advantage. What do you do better than your competitors? What value do you bring to the marketplace in price?
There’s a reason you’re in business. There’s a reason you’re good at what you do. You have something that’s more valuable than the big box competitor or the inexperienced competitor down the street. Build that value into your pricing.
I’ve seen so many times when a small business owner increases their prices, they’re surprised at how little pushback they get from their customer base. Challenge your own stories and test the waters with small increases in your prices. Then start to look at the competition and build in fair value for your prices.
When you work on each of these things to increase your gross profit margin, that increase goes directly to your bottom line.
Look at your overhead expenses.
Analyze each line item and determine if its
1) improving or enhancing your customer’s experience
2)improving and enhancing your team’s experience.
If it’s not doing either one of those, then it’s an unneeded expense.
More information on gross profit margins and increasing your bottom line can be found here. Download the guide today.