2015-06-08 00:00:00 Profit & Loss English Minimizing expenses is vital to succeeding in today’s cost-conscious business world. There are key steps to follow to take control of... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/10/Entrepreneur-Meets-With-An-Employment-Company.jpg https://quickbooks.intuit.com/ca/resources/profit-loss/taking-control-of-your-business-profitability/ Taking Control of Your Business’ Profitability

Taking Control of Your Business’ Profitability

6 min read

As the owner of a business, you’ve developed a certain sense of business savvy. But, your cost-consciousness might not be up to par in today’s business world. Luckily, that isn’t an issue if you learn how to take control of your company’s profitability. Assuming control of the profitability factor of your business is easy when you examine specific aspects of your company where you can downsize, cut costs, and mitigate risks. These aspects generally include:

  • Payroll
  • Contracted vs. outsourced employees
  • Increasing fees or prices
  • Negotiating

Finding the Sweet Spot of Payroll

The single largest cost for your business is also your lifeblood – your staff. Basic costs of payroll include salaries, bonuses, payroll taxes, and benefits – but the list goes on, and costs associated with your staff’s payroll can add up quickly. With this in mind, hiring decisions can be pivotal, especially if you’re just getting off the ground. Luckily, the risk of being stuck with an unmotivated employee can be mitigated by adding a fixed term to your offer of employment. If the stars align and you decide to bring that employee into the fold when the contract expires, that option’s available.

In the short term, if your business is particularly stable, payroll is a fixed expense. So how can you trim the fat without severing an artery? One option is to hire contract staff, that way project-based work can be completed by qualified individuals with relevant expertise who can work on or offsite. If you use online payroll software, even better. Having the right person for the job gets it done faster and usually with better results. When the project is complete, your financial obligation to the contractor also ends.

A workforce of contract staff can provide more strategic and financial dexterity, allowing you greater freedom to make decisions based on conditions at the time and implement those decisions sooner.

This staffing model does come with certain risks. Employee engagement can be a challenge without the opportunity for advancement. As a result, locking in the employees of your business that are absolutely vital to its success is a no-brainer. Aside from this core staff that you must have, this strategy helps you cut costs by leveraging the right resources when you need them and saving cash when you don’t.

Contracted vs. Outsourced Employees

If you decide to bring in some offsite staff, your next decision is whether to hire contractors on a project-by-project basis or outsource various aspects of your day-to-day operations to a firm that specializes in those items.

While contracting and outsourcing are incredibly similar at face value, they have fundamental differences. Both options have pros and cons, so depending on your needs, one might prove a better choice than the other based on aspects such as:

  • How long the project requires
  • How often you need the service
  • Sensitivity of subject matter
  • Location necessity
  • Quality control

How long is the project?

If you’re tackling a one-time project, such as designing a company logo or brand design, this type of work is better suited to a contractor. If the work is more long-term, outsourcing has its benefits. Contractors provide dedicated and constant focus to a project until its completion – outsourcing firms lend support that, while possibly fragmented, is continuous.

How Sensitive Is the Data or Project?

While there’s never a guarantee that a contract employee won’t spill the beans on your business’ deeply held secrets, the chances of leakage multiply when that information is available to an entire team at a third-party service provider. Unfortunately, the sensitivity of information isn’t black and white, and it instead lands somewhere on a spectrum. Therefore, it requires judgement to determine the limits of what you’re willing to reveal to an outside organization or external individuals. As a rule of thumb, the more sensitive the information, the more you should lean toward contracting over outsourcing. If the information is simply too sensitive to share, keep the project in-house.

Where Should the Individual or Company Be Located?

The nature of the task also dictates communication requirements. It’s generally accepted that more can be accomplished in face-to-face meetings than through other forms of communication. Therefore, if frequent discussions are required for progress, explore the idea of an onsite contract employee. Integrating contractors may also help with data sensitivity concerns. On the other hand, if the work is straightforward, having someone physically present might not be necessary. In either case, phone calls, emails, and other messaging services can help lessen the effectiveness gap caused by geographical separation. It also can introduce privacy concerns, so if data is sensitive, decide on a method of communication that offers encryption and other precautions.

Quality Control

Regardless of who you hire to complete your projects, quality is crucial. The results you obtain from contract employees and outsourcing organizations may differ greatly. Once an employee is hired, it’s complicated to fire them if required. Contract candidates might look great on paper, but turn out to be poor performers. Although you’re only committed to them for a limited period of time, their output may not be of the caliber they projected – or the caliber you require. Outsourced resources arguably have more incentive to produce high-quality results, particularly if the work is recurring. It’s much easier to replace a service provider than it is to replace an employee, affording you maximum flexibility.

Whether you contract or outsource any of your projects is ultimately up to you. As mentioned, there are projects that can be turned over to outside employees or agencies with little to no oversight, and other operations that simply must stay in-house.

Taking Control of Profits Through Pricing

While none of your clients or customers are thrilled when you raise your pricing, most understand it’s just the nature of business. If you provide services, take a look at your rates. Do you bill hourly? Pushing your hourly rate just a bit higher can add up over time, especially if you have large clients who require your services frequently. You can take control of your profits by bundling your services into packages, but make sure you’re not offering services your current clients don’t require. You could even consider letting your clients build their own packages. No matter what you decide on, frequently revisit your current pricing model and weigh it against your overall expenses. Investigate where you can raise prices and by how much.

Learn the Art of Negotiation

In raising prices for your clients or customers, you can also look at the other end of the spectrum – getting better deals with your current vendors, or finding new ones. It takes time to examine all aspects of your company to prepare strategic negotiations, so make a list of concessions. Explain clearly what you need from your supplier partnerships after you’ve thoroughly researched current markets. If you’re preparing to purchase a large asset for your company, negotiations can save you immensely – but the devil’s in the details. The more you know, the better prepared you can be to make the deal of a lifetime.

By focusing on a few key areas of your business, you can take control of your company’s profitability and set yourself up for success in the future. Using an accounting system, such as QuickBooks Online, you can generate a Profit and Loss statement automatically. Learn how today.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

Self-Employed or Employee: Pros and Cons

Hiring staff to work in your small business marks an exciting time…

Read more

What are the 9 Project Management Knowledge Areas?

The processes and knowledge associated with project management are not just for…

Read more

Inventory Management Techniques for Small Businesses

There are almost as many ways to manage inventory as there are…

Read more