Making your trade business profitable
You might have just started your trade business or have been in business for a while now, but one of the things that any business owner looks for is profit. Profit is why most people start their own businesses because it comes with early retirement or peace of mind knowing your income is secure.
However, positively changing the bottom line might prove to be a bit complicated than it seems. For trade business owners, competition and operating costs are increasing. Not to mention regulatory requirements such as compliance and tax related issues.
Many tradesmen have found success by using “quick wins” such as discounts, which is not always a good idea. Here’s why discounting can hurt more than it helps. So, what do you do to improve profits?
How to improve your profit in 2019
There are a few things you should know before you implement a strategy to try and improve profits. If your goal is to make your trade business profitable in 2019, the first thing you need to do, is to be the best at what your do. Most businesses promise one thing and deliver something else, which leads to dissatisfied clients and negative word of mouth. A damaged reputation is one sure way of losing business.
Here are 4 ways you can improve your profit:
Whether you are a plumber, an electrician or a builder you have probably done more quotes than you care to think of. Stream lining your quotes process will improve quote turnaround time, potentially beating competition and winning the job, where multiple tradies are involved. The faster a client approves your quotation the faster the balance sheet grows.
Managing your cash flow is more than simply looking at what goes in and out of your accounts and paying your bills on time. Prompt payments are the life blood of trade businesses. The ability to quote, invoice and receive prompt payment allows business owners to pay their tax obligations, debts and remain in business.
- Incremental growth
Having a good list of loyal clients is a good thing, one which a lot of trade businesses aim to have. However, growing that list should be part of the long run strategy. Setting incremental goals for your business such as X number of clients by the end of the first quarter ensures that your business remains on a growth trajectory. The more quality clients the more the profit that can be made.
- Hire a financial consultant Know the margins
Consultants can help you understand how your business is performing and how you can prevent making losses. Financial consultants can help you to cost jobs properly including budgeting and forecasting, allowing you to make informed decisions and maintain profits.
- Know the margins
As a trade business owner, you need to know the margins in your business. You should have an understanding of items such as: materials as a percentage of sales, labour as a percentage of sales, gross profit as a percentage of sales. The best way to improve the profitability of the business is to improve these margins. Another aspect is to compare these margins to industry average.
Some benefits of engaging consultants for your trade business include:
- Frees up your time
- Allows you to “work on the business”
- Produce reports that are relevant to industry average
- Create strategies to reduce risk
- Understanding of compliance for a trade business owner
- Helps you grow your business
At Tradies Accountant we work closely with business owners by doing quarterly reviews. In these reviews, we help you to set a strategy for the next quarter and assist you by providing forecasting advice, cash flow analysis, cost reductions, price improvements and the analysis of group company structure. Learn more here.