How Small Businesses Can Boost Profits

Focus on technology, cost-cutting, and cross-selling, says author and consultant Patricia Sigmon

By Karen E. Klein

Too many small business owners are focused on making payroll, not profits, says Patricia Sigmon, founder and president of David Advisory Group, a Manhattan consulting company, and author of Six Steps to Creating Profit (Wiley 2010). Sigmon, who also founded and still owns a $2 million, 10-employee computer consulting business, LPS Consulting in Fanwood, N.J., spoke to Smart Answers columnist Karen E. Klein recently about boosting profits in small businesses. Edited excerpts of their conversation follow.

Why do many small businesses lag in profitability?

The No. 1 reason is small business owners don’t have the answers in hand. They have no idea that they didn’t make a profit, or that they had a loss. They are chasing payroll money every month, they’re getting deeper into debt, and then they have one bad month—and they’re dead.

Too many small business owners don’t know the difference between “busy” and “profitable.” Small businesses that wait until the end of the year to look at financial reports can lose a lot of money being “busy”—especially in a recession.

Are CEOs not looking at monthly or quarterly financial data?

Some might be, but even then they’re not capturing real-time data. A lot of small business owners still have payroll clerks entering last week’s numbers into spreadsheets. They use a patchwork of software programs that don’t talk to each other and don’t calculate actual costs.

Aside from upgrading their technology so they’re better informed, what else do you recommend for increasing profitability?

Everyone in your organization must be pitching in to improve the bottom line: networking, marketing, selling, cutting costs. If you have employees who show up to take a paycheck and don’t contribute, their jobs should be on the line. Small businesses cannot afford that mentality anymore. Every department should be looking for ways to save money on what they are doing and help the company earn more.

Read More…