Increasing Profit Margin In A Start-up Business
Start-ups are usually faced with the problem of generating positive cash-flow. When a business is launched, it must prove its viability—among other factors, on the long-run and on the short-run, to be able to attract investors. A start-up must be launched with the aim to generate profit—however marginal; if this aim isn’t achieved and the business starts losing money, the proprietor might be forced to close the business.
Profit can be reinvested into the business to enhance business growth and reduce the need for investors’ funds and loans. Profit can also be used to pay back creditors—it is unethical to pay back a creditor from the capital.
An entrepreneur should always aim at viability and profitability—even if he intends to use investors’ money to fund his business. Below are a few tips a start-up entrepreneur can employ to increase business profitability.
Net profit is the difference between total income earned and total expenditure. If total expenditure can be reduced, net profit will increase. To reduce expenses,
- Reduce cost of production by moving production site nearer to raw materials or nearer to market.
- Employ only necessary staff or hire part-time. Do not employ just because someone invested a hundred thousand dollar funding into the business.
- Cut costs. Cut costs by specializing; cut costs by improving technology; cut costs by negotiating great deals. Why pay for something you can have for free? A unit of the raw material you use in production might be costing you an extra thirty cents: Thirty cents may seem like a small figure but multiply the figure with a hundred thousand units.
- Give out a share of your business to expensive and valuable employees. When Google went public, some of its employees bought very expensive cars because they were offered parts of the company for their services which as at the time before Google went public, it couldn’t pay for.
- Be creative: Creativity must be employed in enterprise. If you are creative enough, you will achieve much while doing little. Find other means of increasing productivity without increasing expenses.
When your team mates are motivated, creative, hard working, and they believe in the vision of the business, you may have a winning team. Hiring is an essential part of business and it must not be left all alone to the discretion of total strangers—HR. every team member should have a purpose and a job description. You must also put in the work. If you are a lazy boss and you demand hard work, your hypocrisy will finally tell.
If your business is without vision, it becomes bereft of direction and purpose. Vision is sourced from the passion and essence of the business-owners. A vision must be easy to understand by the lowest of employees; that is, even the gateman must understand his importance to the company and act in the best capacity according to his understanding.
Products are meant for people; they are not created to sit idly on shelves and fill up spaces in the inventory. If your products are not selling, you will not make profit. An entrepreneur must be able to use every angle to effectively market and sell his product. There are times when the profit per unit sold is little; profit then becomes tangible only when a large amount of units are sold. A product must be created with the market in mind. If a product is accepted by the market, it becomes easy to make profit, attract investors, and reduce cost of production through increased technology, specialization and division of labor.
If you are looking for more information on tools and tips to increase profit check out my free masterclass on how to build a million dollar team. Click here to access my masterclass.