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Maximizing Profits posted by Peter J. Patsula

Twelve stratgies to cut costs and build small business profits.

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STRATEGY #1
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Always put two-thirds of your energy into reducing costs and one-third into increasing income.

The best way to increase profits is to lower overhead. Choosing not to spend will give you results immediately, while attempting to increase income will usually involve additional expenditures, no guarantee of success, and delayed results. If you're operating at a 10 percent profit ratio, for every $100 you spend, an additional $1,000 is needed in increased sales to balance these expenditures. Thus, one of the most effective ways to generate profits and increase the amount of cash you have available for investment purposes is to implement cost-cutting strategies to control & reduce your expenses. Remember, overhead kills profits.

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STRATEGY #2
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Avoid the all time biggest money wasters.

"Most of the money a businessman calls profit is merely money that has not been wasted" (Joseph E. Cossman, mail-order millionaire).

AVOID ....

- Buying a new car every few years
- Buying anything on sale that you don't really need
- Investing in "get-rich-quick" schemes
- Playing the lotteries
- Taking expensive vacations

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STRATEGY #3
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Always think of ways ... NOT to spend your money.

Don't spend one cent until you can answer the following three questions with absolute clarity:

1) Can you justify the new expenditure (i.e., do you really need it)? 2) Is there another solution that is cheaper or perhaps free?
3) Will the new expenditure greatly improve your profitability?

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STRATEGY #4
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Attend free IRS sponsored workshops to reduce taxes.

The IRS frequently sponsors seminars and workshops on topics ranging from tax savings to record keeping. Call your local IRS office for the next date. Learn strategies such as: converting your holidays into business trips.

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STRATEGY #5
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Buy in small quantities at first.

It's not a good idea to buy too much inventory or supplies when just starting out. Inventory costs money to store and upkeep. You can always reorder. Buy in large volumes once established and once you have a clear understanding of your markets.

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STRATEGY #6
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Buy quality to save in the long run.

Cheap equipment and furniture wear out faster and become obsolete quicker. More often than not, it is better to spend a little more to get a little more. Always upgrade with the best of fixtures and appliances, so as to reduce maintenance and replacement costs and maximize profitability.

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STRATEGY #7
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Carefully consider all new technology before buying it.

New technology costs are derived from more than just the initial price tag. Additional costs include:

- How long it takes to learn the new technology.
- How long the equipment will last before it becomes obsolete.
- How much supplies and maintenance cost.
- Additional costs, such as special furniture or accessories.

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STRATEGY #8
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Develop a good relationship with your suppliers and service providers.

Contacts in the supply and service business are one of the most important resources you have. Not only can good contacts lead to discounts, but suppliers and service providers are often are your best link to keeping up with the latest trends. To maximize profitability, you should also strive to be on good terms with accountants, lawyers, landlords, the post office, copier technicians, gardeners, and your utility company.

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STRATEGY #9
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Build repeat business: Treat the second order as gold.

The most important order you ever get from a customer is the second order. Why? Because a two-time buyer is at least twice as likely to buy from you again as a one-time buyer. To build repeat business:

(a) Always plan what you are going to sell to your customers next.

(b) Never send a package to a customer without including an order form for reorders and sales literature on other products you think they might need.

(c) Develop a line of products to complement your existing products of services.

(d) Offer special deals to good customers.

(e) Sell consumables that need to be replaced regularly, such as coffee supplies, personalized stationery, name-and-address labels, underwear, beverages, perfumes, etc. Offer special deals on consumables to get people to come back into your store where they may purchase something else.

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STRATEGY #10
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Follow the 80/20 rule.

Spend money where it counts. Remember, that your profits lie in the 20% of your customers which give you 80% of your business.

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STRATEGY #11
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Join a local, state/provincial or national barter ex-change and swap for items you need to run your business.

A barter ex-change works like a bank, except that it issues its own currency called barter credits. When you join a business barter exchange, you generally pay a one-time membership fee for registration. You are then given a list of all the other businesses in the exchange. The better exchanges will have hundreds if not thousands of active members with whom you can barter. Being on a barter exchange increases your inventory turnover. For service businesses, it can help you get extra work and credit for left-over hours which in ordinary circumstances you might not be able to fill.

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STRATEGY #12
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Secure your profits with proper investment strategies.

There are four major types of financial investment vehicles available to you to help you build your investment portfolio and secure profits:

Cash Investments
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Cash investments include savings accounts, term deposits, short-term investment certificates, money market certificates, T-Bills and other investments. These investments are very liquid (cashable), but usually offer low rates of return. Having part of your portfolio in cash gives you the flexibility to react quickly to investment opportunities or emergencies and makes your portfolio less exposed to market volatility.

Debt Instruments
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Debt instruments are contracts between someone who wants to borrow and someone who has money to lend. They include investments such as bonds, debentures, mortgages and personal loans. These kinds of investments earn interest at a predictable rate if you hold them to maturity. However, if you sell them prior to maturity, there is the potential for capital gains or losses. If interest rates go up, your contract is valued less by the market. If interest rates go down, your contract, with its higher rate of interest, becomes more attractive.

Equity Investments
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Equities are shares of a company or organization that increase or decrease in value depending on the market's perception of the company's future earnings prospects. This group includes stocks, equity, and shares of private companies. It also includes real properties and collectibles. Equity investments are expected to grow in value over time and may even provide some income in the form of regular dividends. Historically, they have achieved the best returns but are also the most risky, because their value is based on market demand.

Mutual Funds
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Mutual funds pool resources to invest solely or in a combination of cash investments, debt instruments or equities. The variety of mutual funds available to investors is almost limitless. Mutual funds are generally considered safer than equity investments.

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