How to Increase Your Profit in Three Steps

Speaker: Pam Jordan

Profitability is a paramount goal for every company, regardless of its size. It's not just about generating revenue; it's about ensuring that your bottom line reflects your hard work and dedication. In this article, we'll explore three practical steps to increase your profit in 2021, as shared by the insightful Pam Jordan.

The Speaker and Her Approach

Pam Jordan, a passionate accountant, takes a unique and engaging approach to accounting. She's here to prove that accountants can be fun, and her mission is to help companies of all sizes put more money in their pockets and reward their hardworking owners.

1. Expense Audit

The first step to boosting profitability is performing an expense audit. Pam recommends doing this at least quarterly. The key points here are:

• Distinguishing Fixed and Variable Costs: If you're not an accountant, don't worry. Simply analyze your bank account to identify fixed and variable costs.

• Reevaluate Your Expenditure: Assess whether your expenses align with your current needs. Eliminating excess can result in significant savings.

• Negotiation is Key: Approach your vendors and service providers to negotiate better deals. A simple script, expressing your commitment to the relationship and your desire to cut costs, can yield impressive results.

  
  

2. Review Your Income Sources

Step two involves reviewing your income sources. Here, it's crucial to identify which streams are most profitable. The highlights include:

• Assess Gross Margins: Examine the profitability of each income stream by analyzing gross margins. Consider whether the revenue generated justifies the resources invested.

• Tailoring Your Approach: Based on your findings, tailor your business structure and strategies to focus on the most profitable income sources.

• P&L Analysis: It might be useful to run a profit and loss analysis with the help of your bookkeeper to better understand your income sources.

  
  

3. Manage Your Cash – The Third Step

The third step emphasizes managing your cash effectively. Pam introduces the concept of "Profit First," which is all about adopting a cash-based approach. Key points to remember:

• Cash Management: Allocate your incoming cash into different envelopes or bank accounts. This approach helps you manage your money effectively.

• Operate with Clarity: Unlike traditional accounting methods, this method allows you to see exactly how much you have to spend, ensuring that you stay within your budget.

• Better Decision-Making: Knowing how much money you have for different purposes empowers you to make more informed and strategic decisions.

Determining Capital Needs

The question of capital needs arises, especially in the early stages of business growth. Here are some insights:

• Smart Debt: Understand the concept of "good debt." If a large capital expenditure is required, consider borrowing with favorable terms. Ensure the return on investment is swift.

Scaling on a Budget

For early-stage businesses with revenues below $100,000, consider opening separate bank accounts for profit, taxes, and operating expenses. Allocate a small percentage of each incoming dollar to these accounts to ensure you're building profitability and tax reserves.

Conclusion

Boosting your business profitability doesn't have to be complex or overwhelming. By following Pam Jordan's three simple steps – conducting an expense audit, reviewing your income sources, and effectively managing your cash – you can significantly improve your bottom line. It's a matter of being intentional, proactive, and making informed financial decisions. Don't ignore your numbers, and if necessary, seek professional help to ensure your business thrives and grows.

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Q&A

Q1: Is an expense audit necessary for all businesses, regardless of their size?

Yes, conducting a regular expense audit is crucial for all businesses. It helps identify areas where you can cut costs and optimize your spending, leading to increased profitability.

Q2: How often should I perform an expense audit?

Pam Jordan recommends doing this at least quarterly to stay on top of your finances and ensure that you're not overspending.

Q3: What is "Profit First" and how does it work?

Profit First is a cash-based approach to financial management. It involves allocating your incoming cash into different accounts, such as profit, taxes, and operating expenses, ensuring you always have funds for essential purposes and making more informed financial decisions.

Q4: How can I determine the capital needs of my business?

Understanding your capital needs depends on factors like your business stage and growth plans. Consider borrowing with favorable terms for significant capital expenditures that promise a swift return on investment.

Q5: How can I implement profit-focused accounting while scaling my business on a budget?

If you're in the early stages with limited revenue, open separate bank accounts for profit, taxes, and operating expenses. Allocate a small percentage of each incoming dollar to these accounts to build profitability and tax reserves.

Q6: Where can I get more information and guidance on implementing these strategies?

You can contact Pam Jordan directly at talkwithpam.com or visit pivotyourprofit.com to access resources and the first few chapters of "Profit First" for free.