The most common gauge to see if your service business is profitable is your Profit and Loss Statement. This will reflect your revenue and your expenses and what is ‘left over’, IE your profit health.
BUT what it may not tell you is HOW you can create MORE profits in your business. This is why I’m sharing these 8 questions to ask yourself. It’ll open up your eyes to areas in your business where you have a massive opportunity to either lower expenses or grow more revenue. Either way, it means more money in YOUR pocket!
So let’s dive in….
1 – Do you know EXACTLY what tradeline, product, or service is giving you the highest profit ratio?
By understanding your numbers and which one is giving you a narrow margin, or which one’s are your big money makers, you’ll be able to do LESS of one and MORE of the other and conduct your marketing and sales accordingly for a bigger win.
2 – What are your total debts and when will they be paid off?
Knowing exactly what your debts are and having a plan to pay them off will help you pay them off sooner. And of course, less debt, and lower expenses mean higher profits.
3 – Do you know the TRUE cost of each employee? Not just their salary or hourly rate but the cost to acquire, train, and manage, plus the administrative costs of having them?
Knowing these numbers will help you price jobs, products, and services with a higher profit margin so that ALL your costs are covered. After all, costs often go up and if your prices aren’t going up with it, your profit margins will shrink. You should also review these numbers on a yearly basis to ensure top profitability.
4 – Do you know the lifetime value of your customers and the cost of acquisition?
Understanding what it costs to acquire a customer will allow you to realize that client retention is key. You’ll be able to create a client retention plan that increases the lifetime value of a customer. This boosts profits rapidly (as you have less cost to retain than acquire a customer). Plus it allows you to review your pricing structure to factor in the cost of acquisition.
5 – Do you have a plan to eliminate the slow seasons and stop the peaks and valleys?
You want to make sure that you have consistent cash flow in your business. Peaks and valleys also create stress on the finances of your business and also on you as a business owner. It may even affect employee turnover and morale and culture. By having a plan you can create consistent revenue and cash flow.
6 – Do you audit your tools each year? *subscriptions, software, tools, memberships, programs….
By auditing what you spend your money on, I guarantee you’ll find costs that can be eliminated and lower your expenses instantaneously.
7 – Do you have money set aside to cover taxes each year?
By having a plan to set that money aside each month, you help lessen the burden of taxes. You don’t have to worry about going into debt due to taxes and you increase your cash flow. Win win!
8 – Are you taking advantage of ALL write-offs and are paying the least amount of tax possible?
Having a tax plan and having a Tax Coach allows you to take advantage of all opportunities to save your business money. Without a plan, you are cutting into your hard-earned profits that could be used to reinvest into your business, take your family on vacation, or pay for your kid’s college.
There are even more opportunities for you to cut taxes, cut expenses, create new revenue streams and boost profit margins, but these 8 will get you started and open your eyes to possibilities of improved profit health.
Want a Profit Planning Session to dive into how we can help you put more in your pockets?