Introduction
Running a business at a profit is difficult over the long term. There are always expenses that come up and customers who do not pay. The good news is that there are several courses of action that anyone can take in order to become more profitable in 2016. There are a lot of software tools today that can help a company get organized with the financial piece of the business. Make sure to take advantage of these tools when conduction 2016 planning. Here are several different ways a business can be more profitable in 2016.
Zero Based Budgeting
Zero based budgeting is a concept that few companies understand. Incremental based budgeting is the typical way that a business operates. This theory says that for 2016 expenses the baseline is the prior year. With zero based budgeting, all expense categories start out at zero and then are decided upon. This is a good way to start allocating expenses, and many companies find they are spending way to much money in certain areas. The goal of a business expense is to spend money to make profits down the road. In order to do this, it is vital that the money is spent in the correct areas. Over the long term, this is one of the most important ways that a business can be more profitable. There may be some areas where more money is actually needed than last year. This is a great budgeting concept that can be implemented to help you with increasing profits year over year.
Debt Payments
Many companies borrow money when first going into to business. There is nothing wrong with this, but the debt payments can eat up the free cash flow that is coming in to the business. If you are a company owner with a lot of debt, start 2016 off by paying down some of the high interest debt that is on the company. Over the long term, this will increase the credit rating of the company and free up more cash flow that can then be invested back into the business. This will also help to reduce the risk of default. If there is a large project in the future, this action can be great for securing more funds at a lower interest rate.
Diversify Income
There are many companies that only have one or two income streams. Although this is better than none, it is always preferred to have multiple sources of income. Having several streams of income can accomplish several things. First of all, if there is a downturn in the segment of the economy in which your business operates, it is not going to sink the business. Many companies went out of business in the last economic recession because their only source of income vanished. Make it a goal to add several sources of income into the business, and over the long term this will help balance out the hard financial times.
Use Financial Planning Tools
There are many different financial planning tools for a business that are available today. It can be difficult to keep track of all of the income and expenses within a business. The good news is that there are a lot of software programs for free online that can now do that for you. If you are interested in getting some help in this area, simply search online for them. Adding this to your arsenal of information in a business will help you to make better decisions down the road.
Conclusion
Every business owner wants to become more profitable in 2016. There are plenty of different ways in which this can be accomplished. Over the long term, the small changes that are made in a business can really add up. If your company has a lot of debt, take some time and money to pay off some of what is owed. This can make a huge difference in the monthly cash flow that comes in to a business. In addition, this can make the company more attractive to banks if you have to borrow money for a large project down the road.