Running a business can be made to sound pretty simple, right? Maximise revenues, minimise costs, and end up with a tidy profit. So, basically, what you have to focus on is constantly and consistently maximizing your income and profits.
While it can sound that simple, and sometimes can be made almost that simple, there are several measures you can consider to see how efficient your business is. You can additionally focus on the following factors to make sure you’re running an efficient operation:
- Lead generation (how many new sales prospects are you turning up, say monthly or annually?)
- Lead conversion (how many of the sales leads generated, turn into eventual sales?)
- Number of transactions (how many transactions take place in a fixed amount of time? Is it increasing or decreasing or staying steady?)
- Size of transactions (even if your transaction numbers change, the volume may be travelling in a different direction if you consider the average size of a transaction)
- Profit margin per sale (are you making more or less profit per sale today vs a different point in time?)
- Price raises (is the market ready for a price raise? Do you have no option? What is the competition doing?)
- Reduction of break-even points (the break-even point is where you know that each additional rupee is now going towards profit. If you can lower your break-even point, which should be possible as your business learns and grows, you are able to increase your profits despite new costs and requirements that come up as you expand)
- Elimination of expensive activities (not all expenses are created as equals. In all aspects of the business your managers should be constantly and consistently seeking out every saving by cutting unnecessary expenses and finding cheaper – but equally good – ways to do things)
As mentioned earlier, if the inflow of cash is lower than the outflow, you are in a bit of a trouble because that means that the business will suffer a cash deficit. It’s quite alright to have cash deficits and sometimes there are businesses (particularly technology ones like Amazon or Uber) that function under this condition for long periods of time but it must eventually be paid off. This paying off can be in the form of credit, loans, as capital investment etc.
Earn a good revenue, minimise your costs, and end up with a good profit. As easy as that, with also a few details along the way!