Profitability goes up and down. Seasonality, lower or higher demand, and the cost of raw materials all impact your bottom line. If profits stagnate or aren’t at the level that you need to meet your goals, now is the perfect time to make a change.
Maximizing profitability and cash flow is a top priority for small and medium enterprises (SMEs) that are trying to grow in competitive sectors.
Where do you start when trying to increase profits and cash flow?
1. Focus on Profitable Products/Services
It’s estimated that 42% of businesses fail due to a lack of product or service demand. You need to do two things right in 2025: rethink products or services with little demand and focus on profitable products and services.
Revenue grows on the back of profitable sales, and before you do anything else, you should:
- Review all of your products and services. List the pricing and profits of each item and service you sell.
- Determine which products or services sell for the highest profit. You want to sell more of these items! And consider what to do with your least profitable items on the list.
- Certain products are less profitable than others – it’s the nature of business – but you need to make tough choices to correct profitability issues. Sometimes, a new supplier or lower cost for a lead is all you need to increase profits. Raising prices or eliminating the product or service altogether are other options.
- Consider bundling products and services to give customers more options and entice them to buy more. Pair best-selling items on your list with complementing ones that sell less to increase potential profitability.
Be careful to not be “married” to your products or services, meaning that you hang on to them even when it’s not best for the business. Eliminate the low-profit options and reallocate the resources to strengthen market share for items that are increasing your bottom line.
But what about your legacy customers or clients who purchase these items or services in large volumes?
You can either continue offering the same products or services to legacy clients or customers, increase prices, or go all-in and drop these low-performing options. You have to decide what’s best for the business in the long run. Often, not addressing this issue is the easiest path, but the worst option.
One thing is for sure: you need to take a fresh approach to marketing if you want to outpace the competition and remain profitable.
2. Take a Fresh Approach to Marketing
You have your products and services that you plan on moving forward with, but there’s a problem: you need to market them. If your marketing isn’t catering to where your ideal clients or customers are now, it’s time to take a fresh approach.
It’s no secret that marketing evolves and changes all the time. Your audience may be on social media, or they can fall into a very niche category of people that you still need to connect with at specific events.
Since you’re already in business and making sales, I encourage you to identify:
- What’s currently working to drive sales?
- What’s not been working to drive sales in recent years?
It’s not uncommon for one form of marketing to start dying out. But here’s the good news: your ideal buyer is still out there, and you just need to find a new way to reach them.
You must differentiate yourself from the competition in 2025, and this really means understanding your target audience. Who is your target market? Where do they spend most of their time?
For example, you may need to market through:
- Social media
- Pay-per-click advertising
- Local events
- Chamber events
Your target demographic’s age group can help you better understand your optimal marketing channels. Millennials tend to prefer long-form content, podcasts and videos, and marketing to them on LinkedIn, Instagram, Facebook, and YouTube is often a good option for most niches.
Gen Z prefers short-form content, so TikTok and Snapchat take the reins from Facebook for these buyers.
But there are so many avenues to market to your target audience that go far beyond social media. Once you know where to connect with your ideal buyers, you’ll have an easier time making sales.
You can now focus on zero-based budgeting (ZBB) to boost your bottom line even further.
3. Use Zero-Based Budgeting (ZBB)
ZBB is one of the many types of budgeting, and it starts from the ground up. You’ll need to get into the nitty-gritty of things and justify every expense you make to cut the fat.
Why?
A recent survey found that 43% of companies using ZBB hit their cost targets. It’s a time-consuming approach to budgeting, but it works.
You can start your journey with ZBB by following these steps:
- Create a new budget from scratch and don’t even look at last year’s actuals.
- Analyze every expense. Eliminate and reduce costs that are unnecessary.
- Justify each expense and identify potential ways to reduce costs without impacting quality or efficiency in the process.
- Streamline. Automate. Standardize. Technology is evolving fast, and with the help of AI and new tools, small investments can lead to long-term savings.
- Allocate your resources and finalize your budget.
Clear and transparent documentation and making sure all stakeholders are on the same page are key to success with ZBB. Starting with a fresh budget will help you maximize profitability and cash flow this year.
4. Review Key Processes to Improve Efficiency
Key processes may be inefficient and should be periodically reviewed to ensure they remain efficient. I had a client who purchased materials in a certain format and had to modify them extensively.
And they never questioned it because it’s what they “always did.”By encouraging them to talk with their supplier about it, they discovered they could buy it in the exact format they wanted, thereby saving themselves the time and energy of modifying it, and for a lower price.
A simple change in the way the client received the material immediately boosted efficiency. You always want to ask questions and make sure that everyone is following processes that are as efficient as they can be.
Streamlining tasks, with or without technology, is a fast way to maximize profitability.
I remember working in a stock room for my first job, and it was a nightmare. Nothing was where it was supposed to be. Everything was a mess, and people always seemed to move things around. We could have saved hours of work and tons of money for the company if my employer had intentional processes in place so that stock was always in the same place.
Don’t make this same mistake. Review your key processes and focus heavily on improving your efficiency – it will be worth the effort.
5. Create Short-term Goals to Guide the Ship
Short-term goals, just 2 – 4 months, can guide your ship going forward. If your goal takes a month or less to complete, it’s more of a milestone than an actual goal. Goals that extend out past four months are too easy to procrastinate on.
With this in mind:
- Create your short-term goals that take 2 – 4 months to achieve.
- Break each goal down to have multiple people involved.
- Allocate resources for the goal, even if that means you have to take something off of someone’s plate to reach it.
If you have goals to work towards, it will help you remain focused on growth and profitability.
6. Optimize Cash Flow Management
Cash flow ensures your business remains operational. Implementing smart cash flow management tactics can reduce financial strain and help fund growth. A few key strategies include:
- Streamlining accounts receivable: For example, send reminders for invoices at days 30 and 37, and call by day 45. Consider if you can implement an automated payment system and bill upfront when possible. Offer discounts if they pay early, or not by credit card.
- Managing accounts payable strategically: Determine when it’s best to delay payments until they’re due to maintain liquidity. Don’t forget to consider if early payment discounts apply.
- Adjusting inventory levels: Carrying excess inventory ties up cash. Opt for leaner inventory practices when possible.
- Establishing a cash reserve: Building a reserve can help cover unforeseen expenses and reduce reliance on credit during slow periods.
Cash flow management is as crucial as profitability, ensuring you’re prepared to seize growth opportunities and weather economic fluctuations.
Final Thoughts
By adopting these six strategies, you’ll create a well-rounded approach to growing your business in 2025. For tailored advice or to schedule a consultation, click here.