Getting Out of the Red and Into the Black
getty
For product-based businesses, the path to profitability looks different for each company. Some founders are strong creators who understand the importance of strategic marketing, but don’t have a full grasp of their company’s financial health and overspend. Others skilled at product creation and finance but aren’t marketing savvy experience slow sales.
If either of these scenarios describes you, there is a formula to get out of the red. Here are 4 tips to get lean and help your company become profitable.
Scale Back or Eliminate Positions You Can do Yourself
A founder may feel guilty letting an employee or contractor go and fear they can’t run their company without them. Don’t make the mistake of sinking your business by holding onto people you can’t afford. Oftentimes, a founder can handle a position they outsourced but is resistant to change because it isn’t enjoyable. When a company is solvent, business owners can and should delegate work to other departments or independent contractors to focus on high-level tasks. But until your company has reached that stage, your best bet is to organize your schedule to handle what you can without getting burnt out. Another zero-cost option is hiring interns. Most colleges have internship programs for students seeking positions in a particular field.
Work with an Experienced Accountant
Unless you have a background in finance, your company’s books and taxes are not an area you should tackle on your own. The adage, you get what you pay for, can result in paying unnecessary fees when hiring inexperienced people. Accountant and financial strategist Clarissa Wilson says, “When hiring a financial professional such as an accountant, bookkeeper or CFO to help you manage and analyze your numbers, invest in someone who knows what they are looking for in your business. Ask what kind of experience they have and how long they’ve been in business. Make sure they have a substantial accounting education well beyond taking an online bookkeeping or tax preparation course.”
Increase your Pricing
When you have established pricing for your products, it is much harder to increase a price than lower it. However, if the price is within reason, customers will pay for products they love. If you need to address a price increase, inform your customers without going into too much detail and they will appreciate your transparency. The easiest way to determine if a price adjustment is necessary to help your bottom line is by analyzing your cost of goods to see if you can tweak anything. Many business owners don’t know the full cost of production per unit and make poor pricing decisions because of it. If you are selling both B2C and B2B, check that your margins make sense for wholesale pricing too.
Shipping
If not carefully structured, shipping can negatively impact your profit. Most new companies set up shop and handle their own shipping. In this scenario, it’s best to create business shipping accounts to receive discounts and purchase shipping materials in bulk. Uline is a good packaging resource.
When companies expand, they need to bring on a 3PL. Most shipping companies charge pick and pack, storage and material fees on top of the shipping carrier fee, which can add up depending on the weight and units being shipped. Read the fine print and get the carrier shipping prices up front. If they have your credit card on file, companies may charge for stamps when needed and don’t include them in their monthly invoice breakdown, leaving businesses in the dark about the actual cost. Companies like Shipbob offer an all-in-one transparent price structure. Having a clear understanding of what it costs to ship each unit/product will determine your shipping fees. Usually, companies offer free shipping for a certain dollar amount spent. For free shipping on certain orders, you will cover the cost out of pocket, but the goal is to balance it so shipping fees aren’t eating up your incoming revenue.
Looking at your company’s numbers can be intimidating, especially when it feels like you are stuck in the red. But having clarity on what it costs to run your business will allow you to get out of vagueness and into making sound financial decisions for the growth of your business.
