5 Business Tips To Help Boost Your Bottom Line5 Business Tips To Help Boost Your Bottom Line
September 28, 2022 0 Comments 12:00 amSageworks,a financial information company that provides financial analysis and industry benchmarking solutions to accounting firms,recently released a statistical report on sales trends for U.S. companies. What they discovered is that the current annual sales growth at privately held companies is the lowest it’s been since 2009.
This data is significant,since 99.7 percent of all U.S. businesses are privately-held. These small,privately-owned businesses are also responsible for creating 64 percent of new private-sector jobs,and account for 49.2 percent of overall private-sector employment. This means that when sales growth declines,hiring will most likely decrease and potential layoffs may increase.
Based on sales trends for privately-owned businesses,Brian Hamilton,chairman of Sageworks noted,”The sales growth rate of private companies is going down significantly. Looking at the data in context is important; last year,sales growth averaged about 9 percent across all private companies,now it’s less than 4 percent,which is a dramatic decrease. We are in the fourth year of an expansionary period. Things have gone well,but private companies have been very overhead-reluctant even before their sales growth slowed,which is concerning for hiring.”
What Hamilton is essentially saying is that although the economy has stabilized to some degree over the past couple of years,business owners are treading still lightly as the economy is in a very fragile state. The recent downturn has has forced a significant number of small and private-sector businesses to look for various ways to control and/or cut their overhead expenses in an effort to boost their bottom line.
Commonly,businesses look to boost profits by increasing their sales,whether it’s a product that they sell or a service they provide. From a business standpoint,this makes sense – sell more in order to make more. This is why businesses both large and small invest a great deal of time,energy,resources and money into marketing and advertising in order to generate a greater number of sales. This strategy has been designed to work,however,it does not necessarily produce immediate results on the bottom line for businesses. Oftentimes,it requires some time for marketing efforts to generate traction among consumer,and this can be especially concerning for cash-strapped businesses.
Another option to boost profits is to trim overhead costs. Mary Ellen Biery of Sageworks says that “In fact,sometimes it can pay more to cut overhead than to boost sales,because typically,more of the cut to overhead will fall directly through to profits than will a similar boost in sales.” Biery went on to say that “controlling or trimming overhead can have an outsized impact on smaller businesses,because they spend a higher percentage of their sales on overhead,on average,than do larger firms.”
For example,overhead at privately held retailers in 2013 averaged about 22 percent,however,private firms offering professional,scientific and technical services,which includes consultants and lawyers,had average overhead representing roughly 51 percent of sales. Although these percentages may be on the higher side,it does not necessarily mean that the company is poorly run,or that the business itself is not profitable.
It is,however,the duty of these private and small business owners to constantly evaluate and measure the performance and productivity that the overhead costs yield for their businesses. A failure to do so could result in a great deal of wasted time,energy and resources,which eats away at profits and ultimately hurts businesses in the long run.
Michael Bohinc,owner of Keeping Score Inc.,an accounting,tax and business management advisory services firm in Cleveland,Ohio,specializes in working with plumbers and HVAC companies. In comparison to construction services,HVAC or plumbing contractors “primarily sell their services,i.e.,labor,” Bohinc said. “It’s been my experience that labor generates significantly higher overhead amounts than materials in the construction industry.” A significant portion of the wasted overhead is due to “unproductive” labor costs,or labor that can’t be directly billed to customers.
So the question for small business owners is,”How can I trim some of my expenses?” Listed below are some tips that will help cut some of the overhead costs for privately-owned businesses:
- Use web-based technologies to reduce costs tied to buying software and providing IT support.
- Shop around for commercial and workers’ compensation insurance to seek a lower rate.
- Monitor unbilled labor carefully,as it is one of the major overhead expenses for contractors and some other labor-intensive firms. “Maximizing the productivity of the field staff,or billed labor,will decrease the unbilled labor costs and,correspondingly,the overhead percentage,” Bohinc said. “This will drive additional dollars to the bottom line.”
- Trim fuel costs. “A great way to do this is to install GPS devices in the company’s vehicle fleet,” Bohinc said. “Proper scheduling of jobs and routing of the vehicles using tracking systems can bring significant fuel cost savings.”
- Evaluate your office space and its use. Greg Mertz,managing director of medical practice consulting firm Physician Strategies Group LLC,recently suggested that doctors consider moving billing,accounting and transcription staff to a nearby office that costs much less per square foot than does medical practice space. The medical practice can then turn the vacated space into exam rooms or modify them to support offering a revenue-generating ancillary service.