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Why do we think of ‘Cost Cutting’ to Increase Profitability?

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One thing all businesses have in common is the need to be profitable.

A strong turnover is essential for the longevity of any businesses to succeed. But how do you create profitability and where do you start?

The downfall that many small business owners experience is the lack of knowledge to answer those exact questions.

When discussing the current situation of a client’s business we always come back to the two fundamental questions. Why did you decide to start your business? and What did you want to get out of it?

We’ve pulled together our 4 tips that will arm you with the knowledge to create a business that is profitable without having to cut costs.

1. Small changes to create BIG results

You’ve been in business a little while now and things are going quite well but you’re just not reaching the goals you wanted to. You’ve hired staff and have a range of products or services that cater for a wide market.  Why hasn’t your profitability increased?

Let’s take a look at the people who work for you.

Have you been able to create an environment where everyone believes in the core values of your business? Are these people passionate about the industry they’re working in and enthusiastic to help grow your business? Is everyone “on the bus”?

When you’ve hired your rock start team, show them that you appreciate their efforts by encouragement and new idea collaboration. Build relationships by being available to them and being positive when they have suggestions. By having everyone on the same page the business is more likely to thrive. 

Increase Productivity by 1%

Generate a small change to your profit by increasing your team’s productivity. If you are in a business which uses a high amount of staff labour, a small increase in productivity can lead to big changes in your bottom line. 

Quite often businesses have a process that has never been changed or challenged as the most productive way of doing a particular task. The mentality of “that’s the way we have always done things around here” can kill productivity and employee engagement. Conversely, imagine the empowerment felt if an emplyee suggests a change of process that increases productivity and makes everyone’s life easier. 

A happy and empowered team will help drive growth in the business and will take care of your bottom line. 

2. Is your business culture the right fit?

Let’s start from the top (you) by creating an environment where people want to work. There is a distinct difference between motivation techniques that are constantly changing to establishing a long term supportive environment.

Having supportive management is the foundation for long term employee retention. Invest in self-development and work towards becoming a leader.

Support and trust

Part of building a supportive foundation is to learn how to trust your employees. Encourage and praise them and provide them with a strong sense of autonomy so they feel empowered in their role rather than micromanaged.

Have Meetings

For an affective working environment transparency is the key. Hold daily workflow meetings. Each team member can provide a quick 10 second summary of what they have on their ‘to do’ list today and what will be completed by COB. 

By adopting this technique, it will highlight:

Many employees often fall into a rut and think no one else is doing as much work as them. This causes friction in the office and negative energy. We want to avoid this and remove it at all costs. 

Positive people, positive energy and positive encouragement will increase morale and productivity. 

 3. Focus on your key customer. Do you know them well?

Imagine if you could spend all day with the people you love the most. Who would they be? What do they enjoy doing?

Now let’s think about your key customer, can you answer the above questions as easy?

Understanding and really knowing who your key customers are is crucial to providing them with products/services they actually require. Gone are the days when you have to service everyone. The aim here is to focus on those customers who provide value to your business, who are repeat customers. These people will inadvertently be a word of mouth marketing tool.

Let’s strip it back 

Off the top of your head who are your top 3 customers. Jot down the answers to these questions.

What do they do for work?

What’s their job title?

What is their biggest challenge?

How do you help them overcome it?

Where do they go to learn new information for their job?

How do you prefer to interact with them? (email, in person, phone, social media)

I bet some of those rolled off the top of your tongue but the majority were a bit tricky, right. Creating personas (ideal customer characters) take time.  Creating personas for your business will allow you to segment and target these people more appropriately.

You should reveiw your stock and identify inventory that these key customers aren’t purchasing. Discount and get rid of it. Maintaining the right (fast moving) inventory will turbo charge your cash flow. 

Focus on what your key customers require, why they need these products and adjust your purchasing accordingly.

4. Look for a better deal on your utilities, and reduce overheads by 1%

Have you checked recently as to whether you’re getting the best deals on electricity, phone, insurance and other regular expenses?

What if I told you that if you could save at least 1% in each of these areas that it could add up to saving thousands? These small changes can increase your monthly cash flow significantly, giving you more money to invest or reduce debt levels.

5. Take Advantage of Early Payment Discounts

Another key area that most businesses don’t take advantage of is early payment discounts. A lot of suppliers have early payment discounts of up to 5% if you pay their invoice up front or by a defined payment date. By improving your cash flow you can take advantage of these discounts  so that you can reap these rewards even further.

If you want to achieve profitability you have to be ready to create change. To be ready for it and to constantly drive it.


Sharp Accounting is a local accounting firm in Ballarat. Sharp Accounting nurture business growth by adding value through collaboration and shared knowledge.

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