Approaches for boosting business profitability in 2022
As we wrap up 2021, it’s time to plan ahead for a profitable 2022. Two routes for businesses to pursue are to reduce costs or increase margins, which may go hand in hand, depending on the type of operation. There are several ways to reach the end goal, which we share with the corporate clients and closely-held businesses we serve.
1. Cut inventory and cut your losses
You may operate a business that sells goods (retail and wholesale), or uses certain goods to produce what you sell. Take a hard look at inventory levels and assess what’s not selling or moving quickly enough. In 2022, you can plan to no longer stock those goods or make changes to your product mix to maximize your inventory management; but for right now, consider selling off that stale inventory at a deep discount. Use the money from that sale to purchase inventory you can sell for a higher profit, and add to your sales volume.
2. Increase prices
Be honest: have you kept up with inflation, market conditions, and your competitors? When was the last time you updated your pricing structure? Do your prices align with your operating costs?
We don’t suggest you outprice your competition (unless what you sell or do is highly specialized). But all things being equal, your pricing should align with what others are charging in your market—and cover the increased cost of goods sold. Depending on what your financial statements show you about your gross profit (which will affect net profit), you may raise prices across the board or selectively on individual goods or services. The goal is to retain or increase your profit margin to maintain profitability.
Hint: if your customers are not complaining about your prices, you may have reason to increase them.
3. Review staffing levels
Going into the new year, assess your workforce vis-à-vis your business goals.
- Is it time to add or delete employees, or change the mix of roles and team members? For example, it might make sense to add salespeople or call center representatives—a short-term expense for a long-term gain in sales.
- Should someone be promoted and delegated more responsibilities?
- Make staffing changes to allocate more hours to certain departments or productive team members, and terminate employees who are not contributing to the company’s sales and service.
4. Evaluate your client/customer base for profitability killers
Which ones are pulling down your profitability? Sometimes, the high-volume customers cost too much. These buyers or clients take or ask for too many discounts and pinch you on your margins. Or they take too long to pay which hurts cash flow. By eliminating problem clients, you will have more time to focus on new clients or customers.
5. Review your business policies
By this, we mean your business insurance policies (general liability, workers compensation, D&O, E&O). Premiums increase yearly but rather than simply absorb that price increase, review the coverage with your agent to look for opportunities to repackage the policy—especially if you have a low claims incidence rate or your workforce has changed. A competitive review from another carrier may highlight where you can save on insurance costs.
Additional areas to review
- Advertising & marketing – Is your paid advertising reaching the right audience in the right channels? Does your marketing convey your brand accurately and well? First quarter is a great time to audit your marketing plan and media spend.
- Technology – Using the appropriate tech tools will streamline workflow or processes, especially in manufacturing, wholesale distribution, and service companies. A small technology investment may yield big savings over time by creating greater efficiency. Whether it’s equipment or software, look at what will help you reallocate resources and foster higher productivity across your organization (and boost your bottom line).
- Product or service agility – Evaluate how well you are meeting your customers’ needs today. Do you provide services or sell goods that can be repurposed, shifted, or retrofitted to develop a new market or gain new customers and sales? Is there a brand extension you’ve not yet implemented to create a new or broader income stream?
- Customer service – How well are you handling customer service issues? Is your team large enough to manage incoming calls, requests for support, and other frontline service issues that improve brand loyalty and positive word of mouth? Are your employees trained to recognize when it’s time to kick the call up to a manager? Adding a chat bot to your website or social media accounts, and hiring call desk employees are good ways to improve customer service.
Contact SSL CPAs
Staying competitive also means staying profitable for the corporations, family offices, and closely-held companies that we serve as a full-service CPA firm based in northern NJ. As part of our management advisory services, the profitability experts at Scheidel, Sullivan & Lanni can help you position your company for a strong 2022 with a comprehensive review of your financials and your business model. Contact us to discuss your needs and profitability goals at [email protected] or 201-236-2226.