Make a 1% change this year – and watch your profits grow!

Like just about everyone else in the world, most business will have set themselves goals for the New Year. But unlike all those with resolutions to go to the gym or cut back on booze which tend to peter out by the end of January, entrepreneurs are determined people: they’ll still be battling to improve their businesses come December 2018. The question is, will their resolutions make a difference?

There are all kinds of reasons why many won’t: Early stage entrepreneurs often set targets that are simply too ambitious – and then give up when they don’t make significant progress towards them. Meanwhile, more established businesses often struggle to find suitable targets at all: they are trading successfully, but they don’t know where to improve.

In both of these cases, it might well be worth channelling some of those seasonal good intentions into making a few apparently tiny changes: aim for gains of just 1%.

Small change can add up

Obviously 1% is not considered an impressive level of growth. Nor is it a decent target for your sales team: realistically, you want them to make as many new sales as possible. However, if you target a number of 1% gains in other areas, and couple this with the sales growth you can achieve, you may be surprised by how things add up.

The 1% price increase

Most businesses put their prices up once a year, to offset inflation if nothing else. And it’s not uncommon to put in a small ‘real terms’ increase as well – 1% above the rate of inflation is reasonable for many businesses, and if you’re going out of your way to provide great service week in, week out, your clients shouldn’t object.

The 1% cost reduction

Now for the tricky bit: can you reduce your cost base? Obviously, if there were big savings to be made, you would have made them. But how about going through your books to see if you can make a 1% saving.

Some things will be hard to renegotiate at this stage: your lease, for example, and any outstanding business loans. There are certainly ways of cutting the cost of business finance – just look at alternatives like invoice financing – but they’ll have to wait until you can extricate yourself from your current deals.

Instead, savings can often be made on costs such as labour and supplies. We’re not suggesting for a moment that you cut wages for hard working staff – they will likely be in line for a raise of their own – but the payroll is an area which is worth thinking about. Can you take on an apprentice instead of a trained worker? Can you promote from within to avoid making an expensive senior hire? There’s gold in those numbers…

Other savings could be easier: many firms regularly use an expensive business overdraft to cover the cost of supplies and even wages. They do this despite having outstanding invoices which would easily cover these costs. With debtor finance such as invoice discounting or factoring, they could use the power of those accounts receivable to get out of debt.

Similarly, many suppliers will gladly offer improved terms to a business which is prepared to pay immediately on receipt. Tim now offers an Accelerator Funding product that takes advantage of these discounts, allowing trading businesses to cut their costs while improving their cash flow, and their supplier’s cash flow.

How much will those changes make you? Well, if you increase your prices by 1% and successfully cut 1% from your cost base, the effect on your margin will be much bigger. It depends on the business, but 20% or even more would not be unusual. Couple that with your hopefully increased sales, and your bottom line could be transformed. All because of the power of a 1% change!

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