By Salim Omar, CPA
Businesses are always searching for ideas and concepts to generate profit. Some of these concepts include increasing sales, while others include decreasing overhead. No matter which way you look at it, the name of the game is to generate positive net profit numbers as well as positive cash flow.
There are three ways to make more money in your business:
1) Sell more products and services
2) Raise your prices
3) Reduce your overhead
[youtube]http://www.youtube.com/watch?v=NXMlRFpWsFw[/youtube]
Businesses that underperform from a financial perspective have often allowed their success to creep in and increase overhead; expenses and items that were considered to be too much money in the early, lean years, are permitted once things get rolling as a sign of prosperity (among other reasons.)
If you want to increase your profitability, you may need to keep your eyes on your overhead and look to decrease it. In fact, decreasing overhead is often considered to be the easiest way to increase net profit numbers.
One of the most expensive overhead items for almost any business is payroll. Most companies hire employees they don’t need, causing their payroll expenses to increase. Hiring unnecessary employees subjects you to registration and record keeping requirements and can be very expensive. You’ll have to pay unemployment taxes, withhold state and federal income taxes (as well as Medicare and Social Security taxes), pay for workers’ compensation insurance, and comply with safety regulations to avoid injury to your workers.
You may face severe penalties — and may even be found to be personally liable — if you don’t comply with all of these employment requirements. If you need help with your business, consider hiring an independent contractor or a worker from a temp agency rather than a permanent employee, as you would avoid having to pay all the fees listed above.
Here are a few ideas to reduce the cost of payroll:
— Re-structuring employee compensation/bonuses to link to production or desired expected goals. An example of that is a client I have in the construction industry who literally doubled his net profit using this one strategy. Salespeople are accustomed to working on a performance basis, yet many businesses feel that they need to also offer a base salary. You will find that offering salespeople a higher commission or bonus structure instead of a salary and lower commission structure will attract better talent and produce better sales figures for your business.
— Train, train and then, train some more: Often, poor or inept employee performance is NOT deliberate sabotage; it is due to a lack of appropriate training. Often employers assume new employees know how to perform their job functions and, therefore, do not orient them to their job. Spend time training each of your employees so that they understand their roles and how to perform at the most optimal level for their position.
— Hire slow, fire fast. Don’t hold on to people that aren’t contributing to the success of your organization. Firing someone is tough work for most small business owners, but if it’s got to be done, you’ve got to do it. And do it NOW! You can avoid poor hiring decisions by spending more time in the hiring process as well. Develop an interviewing and screening process to utilize when searching for new candidates, and have a few people in your company interview the candidate.
— Start by establishing clear deliverables and deadlines with every employee. Then, set aside time on your calendar to inspect their deliverables. A big mistake is to assume that just because you assigned a project to an employee, it will get done satisfactorily. Take time to inspect the results and give constructive feedback to your employee.
If you want to improve the profitability of your small business, you may need to keep your eyes on your overhead and look to decrease it. Reducing overhead is often the simplest way to boost the company’s bottom line.
About the Author: Salim Omar, author of
“Straight Talk About Small Business Success In New Jersey”
specializes in providing accounting and tax services to small business owners and professional practices in NJ. Salim’s articles are featured in various national magazines including Accounting Today, The CPA Journal, Chiropractic Economics, Wealth Manager and The Two River Times. You may request a free copy of Salim’s new special report titled
“How To Drastically Reduce Your Taxes By As Much As 62% This Year Alone And Put Thousands Back In Your Pocket”
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