The Three Ways to Improve Profits

Every small-business owner spends a significant amount of time trying to increase the business’s profitability — the difference between revenue (the money you take in) and expenses (the money you pay out). No one succeeds in increasing profitability all the time, no matter how hard he tries. Some succeed often enough to grow a small business into a larger one. Some succeed just often enough to survive. And, unfortunately, some don’t succeed at all.

The three ways to increase your business’s profitability are

To decrease expenses

To increase margins

To increase sales

You can do all three at the same time — that is, if luck and the time you have to devote to the task are on your side. However, our advice would be to pick the easiest avenue first (decreasing expenses). Then proceed to the second easiest (increasing margins) and then, finally, to the toughest (increasing sales). Unfortunately, too many entrepreneurs start with sales first (after all, increasing sales is a lot more fun than cutting expenses). While we applaud their gusto, they’re approaching the process from the wrong end and won’t see the same results they’d get if they started with expenses.