Improving productivity and profitability for small business

For those who run and manage small businesses, improving profitability is generally the key objective. After all, most people go into business intending to make a profit. However, many small business owners find themselves working very hard and apparently doing plenty of work, but with little money to show for it. How does this happen, and what can be done about it?

 All too often, business owners confuse productivity with profitability, thinking that the two are equivalent. They are not. Productivity can loosely be described as the amount of profit-generating work that is done - the amount of product produced. Profitability is the profit made on each unit of that product and on the total amount sold.

The reason that these two concepts should be separated is quite simple. Productivity, if it is not streamlined and as efficient as possible, will damage profitability. For example, if a business takes twice as long as its competitor to make its products, it will have half as much stock to sell and will therefore, probably, make less of a profit. So productivity must be carefully tailored and maintained, to be as efficient and cost-effective as possible, because it plays a crucial role in determining the level of profit that is generated.

Inefficient productivity is a problem for big business and multi-national corporations, but it is probably an even more pressing and worrisome problem for small businesses. This is because small businesses often run on tight financial margins - at least initially - and so any adverse effect on profit is quickly all too visible.

That catch is, of course, that small businesses are often also run with a very small number of staff - sometimes just one person. Making sure that the business is running to maximum efficiency is time consuming and a full time job in its own right. If the business owner and/or small staff is also dealing with all of the other aspects of the business - accounting, sales, marketing, human resources and so on - it becomes all too easy to take short cuts with the important issues. The result is that businesses lose sight of what really matters, in a bid to get everything done on a shoestring.

What most small businesses need is quite simple: they must reduce unavoidable expense to as low a level as possible, while boosting productivity and profit margins. This means deploying staff where they are likely to be most effective, for example in planning, strategising and doing the work that makes the profit, while getting everything else done to a relevant standard, as cost-efficiently as possible.

Of course, getting help with administration costs money, but when handled efficiently this not only allows the business to improve productivity (driving up profits in the process), it can also reduce the cost of existing solutions, such as in-house or outsourced administration services. In other words, when it comes to improving the productivity and profitability of a small business, using an umbrella company or similar solution can be an integral part of the solution, rather than representing an added cost, and can make a valuable contribution to a business's profitability at the end of each financial year.

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Pete White Pete White

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