“The bottom-line is that you are in business to make a profit.” Heidi Richards Mooney

"How to Keep Costs Under Control and Increase Profitability"In any small business it is important to keep track of income and expenses. As small business-owners we are often so busy with the day to day operations, we overlook the most basic and yet the most important aspects of our business ~ the money we spend and the money we earn.

It is critical to know the difference between available cash and profit. Available Cash is what you need to keep your business open, while you are working to make a profit. Profit is the expected amount of money you will make if your clients and customers pay you on time, and your expenses are met. Keep track of negative and positive cash flow trends in your business and analyze how to avoid or lessen the effect negative cash flow has on your business. Make sure you have a plan in place for the lean times (such as reserves in the bank, savings and/or a line of credit).

Here are 13 tips to keep costs under control and increase profitability in your small business:

1. Understand Cost & Pricing for Profit. Cost is the total of the fixed and variable expenses (costs to you) to offer your product or service. Price is the selling price per unit customers will pay for that product or service.

2. Know your break-even point. If you need $3,000 per month to keep your doors open including the costs of goods, you must receive at least that much each month to “cover” your expenses. The bottom line is that you are in business to make a profit. You must create a budget that takes into account your costs of goods, break-even point and how much you need to make a profit. A budget can keep you out of debt or help you get out of debt. It helps you prepare for emergencies or large or unanticipated expenses that might otherwise wreak havoc on your business. A budget lets you control your money instead of your money controlling you. It can help reveal areas where you’re spending too much money so you can refocus on your most important goals.

3. Control your costs of goods – focus more on the high profit items and find ways to sell slow-moving items quickly.

4. Know how often your inventory turns over – do you replace inventory at least four times per year? IF not, reevaluate your spending and plan accordingly.

5. Avoid late fees by paying invoices on time. Late fees can add up to great expense if not watched, not to mention the relationships you will have with your vendors when you pay them late. Remember that they are also trying to get their customers to pay on time.

6. Read and approve expenditures – Ever pay twice for the same item? Busy entrepreneurs who miss the due date, might pay for an invoice and the next one comes along – we forget we paid for it the first time and write another check. This could save you hundreds, if not thousands in dollars, not to mention the work involved in recouping the money or getting a creditor to issue a credit.

7. Rev up your collection process – cash flow in small business is a big issue. Make sure your accounts receivable is coming in on time. Review your collection process and adjust accordingly.

8. Don’t buy things until you need them. This can only hurt your cash flow and reserves. Sales are not a good deal if they tie up money you need today.

9. Negotiate with vendors to get better quantity discounts – if you buy primarily from one supplier ask for better pricing. Remember to ask about any specials your vendors may be having. Find out if any of the items you normally purchase are going to be on sale and if so, when. That’s the time to buy what you need.

10. Price Shop – Need a new computer, microwave or desk? Compare before you buy.

11. Use Coupons – membership incentives, etc. wisely. If your local office supplier gives rebates on purchases, make sure the purchases really do save you money in the long run. Do this by comparing the cost with other office suppliers and deducting the rebates. If you come out ahead after the rebate, it’s a good deal. If you don’t, then ditz the memberships.

12. Co-op with other businesses to advertise – if you advertise with flyers, partner with a complimentary business to share the expense by offering them to use the other side of your flyer – saves money on printing and distribution for both your businesses.

13. Have an idea of the week (or month, or day) contest with your staff – reward them for their money-savings and money-making ideas. Call it a “penny wise” contest or “penny pincher” and offer prizes and time off for their ideas. Put their ideas on a plaque in your establishment.

By saving in the short-term you can have a healthier profit at the end of the year. Follow these 13 tips and watch your bottom line improve as you increase  the overall profitability of your small business.