3 Ideas to Improve Profitability Post COVID-19
What an 18 months it’s been.
If you’re like most business owners reading this, COVID-19 just threw your business for a wild, winding loop.
And unless you’re in the business of hand sanitizer, it probably wasn’t the good kind.
Whether you were closed for months at a time, reluctantly had to let go of staff, or discovered a new hybrid business model, chances are that your P&L doesn’t look quite like you thought it would two years ago.
The good news is that we’re on the up! And in a new post-COVID era, there are ways to add more cash to your bank account without throwing another wrench into your plans.
In today’s blog, we’re going to give you a few valuable tips on how to approach your business in the post-COVID era, and what you can do now to improve profitability next year.
Let’s dive in.
Improve Profitability #1: Good Accounting Practices
I know what you’re thinking – good accounting practices? That sounds basic.
But hear me out.
Business owners hoping to improve profitability must track income and expenses regularly through a good accounting system.
It’s the only way to ensure that you’re making the right financial decisions for the business long-term.
We personally like Xero and use it with all of our clients.
It’s a great platform that easily syncs your bank accounts and credit cards daily, so you and your accountant can see transactions on a routine basis. Expenses can get away from you fast, and setting up automation to track everything will help you get a better handle on what is happening and where.
Regardless of which system you or your accountant use, the most important step is to make sure the books are done accurately, on time, and are reviewed each month.
Up-to-date financial reports are critical to the success of your business.
If you’re only paying attention at the end of the year, or you’re currently sitting on months and months of overdue books, you’re going to have a problem improving your current position.
Action: Get a handle on how your business is doing. Put good accounting practices in place and review the books regularly.
Improve Profitability #2: Review Big & Small Expenses
Once you have your monthly financial reports under control with up-to-date information, it’s time to start looking at where the money is actually going.
Most likely, the three biggest costs eating up your profit are rent, loan payments, and employee costs.
Let’s look at each one in more detail to see where we can cut down.
Rent: Post pandemic is a great time to re-examine your need for rent. Can you get by with a home office? Or a smaller space? As more and more businesses are moving to hybrid working, you may not need the same amount of square footage as you did previously. And if you do, you may not need it every day of the week.
It’s a good time to explore co-working space, sharing an office space with another company, or simply moving to an all-virtual environment.
However, if none of these options are viable, it’s also a good time to renegotiate the lease terms with your landlord. With so many businesses moving away from offices, the power to negotiate is in your hands. Speak with your accountant or business advisor about the best way to approach these negotiations.
Employees: Nothing can eat up revenue faster than the cost of employees or contractors. Payroll is usually the biggest expense you’ll have. Fortunately, it’s the easiest cost to manage, as well. Until you get back on your feet, it’s a good idea to keep labor costs as low as you can in order to preserve more cash. Before hiring more staff, we recommend speaking with your accountant to help make sure any additional hires are a viable option for the business, according to your current position and forecasts.
Loan Payments: Finally, loan payments – the headache that just won’t go away. If you’re still paying on business loans from when you first started your business, chances are you’re watching thousands of dollars go out the window each month. Your accountant should be able to advise you on ways to get these payments down. If you don’t currently have an accountant, you can reach out to us anytime here.
After you’ve covered the biggest categories of expenses, we recommend going through your smaller expenses as well.
One common tip we gave our clients during the pandemic was to pare back expenses to the absolute minimum – i.e. the big 3 above – and add back in costs from there.
Try this exercise: Print out your last few months of expenses and go line-by-line with a pen.
- Are you currently paying for two similar software programs? Get rid of one.
- Are you paying $5 towards a publication you no longer read? Cross it out now.
You’ll be surprised at how many recurring subscriptions and unnecessary spending habits have crept in.
Taking these expenses out temporarily, or even long-term, will go a long way in helping you keep more cash in your pocket.
Improve Profitability #3: Think Hybrid
Now that we’ve talked about reducing expenses, let’s talk about increasing your revenue.
While we can only reduce and cut expenses by so much, the possibility to increase revenue is infinite.
Heading into the end of the year is a great time to reevaluate your business offerings.
Here are a few questions to think about this time:
- What are my customers looking for now?
- Have their values changed since the pandemic?
- What has been my most successful revenue stream in the past two years?
- How can I expand on this?
Chances are that your customer’s values have changed since the pandemic.
If you’re a gym, clients may choose to work outside rather than in confined, indoor spaces.
If you’re a therapist, maybe your clients would prefer to have virtual sessions rather than drive across town each week.
Think about what your customers want (or need) and how you can expand your current offerings. This may be an online course, a new virtual revenue stream, or even a brand new product or service altogether.
Whatever it is, post-pandemic is a great time to explore the possibilities. Just make sure you speak with your accountant to get help with forecasting or cash flow management before jumping in.
What are you doing to take your business up a notch in 2022?
We’d love to hear.
If you’d like to get in contact about anything we’ve mentioned in this article, you can schedule a quick consultation with us any time.
Until next time!