When asked how to increase profits, most small business owners will readily answer with “increase sales.” I definitely agree. There is nothing like enjoying a healthy top line. And yet, while working feverishly on that goal, there are many owners who have not yet discovered the hidden profits that could be available to them simply by walking a few new profit avenues.

In order to impact your bottom line, almost every aspect of a small business must be fine-tuned. The highway we are going to examine today is named “Efficiency,” and it will lead you toward a lot of different paths to scrutinize. The closer you look, the more opportunities you’ll find.

Let’s consider overtime – or for the smallest companies, rush fees. Before we dive into this point, I need to point out that you should never consider eliminating the option of overtime or rush fees when customer service will be compromised. If your hiring requirements or outsourced staffing are correct, however, you should be able to eliminate all unnecessary, routine overtime and rush fees. These can kill your profits. Believe me.

Likewise, our small business should not be overstaffed; it is simple a profit drain. If you’re a mid-size company, your manager(s) or you must be able to make adjustments parallel to your needs (even on a daily basis). How close are you running to your productivity goal number (gross sales at any hour / by the total hours used for the same hour)? If you’re running a micro-business (meaning just you), make sure that you’re accurately outsourcing and delegating – and projecting your projects and deadlines BEFORE you pay those dreaded rush fees.

Our next bumpy road is for all product-related businesses – large or small – and that rocky road is: Inventory. I believe that high inventory or selection is cash tied up. Couldn’t you have used the cash for something else or bring it to your bottom line profits? Use an inventory spreadsheet to guide you; and note your individual “item par” and order according to what you have “on hand” and readily available. Consider using “rewards” or free or reduced shipping charges to move inventory out and bring profits in. Be knowledge of immediate future special priced items, and consider bundling your order with another order from a fellow business owner, if you know one in a similar niche or with the same customer base. Have you considered guaranteeing a supplier a year’s worth of ordering for a reduced price?

Let’s talk about variable costs. If you don’t know your variable costs you don’t have the information you need to maximize the profits in your small business. You don’t have the information you need to price your products and services. You can't operate your small business with the accuracy and precision to maximize your profits. Variable costs are a key com of your profit and loss statement.

So what exactly are variable costs? Variable costs can include direct material costs, direct labor costs, and other required inputs necessary to complete a project. For example, a company may have variable costs associated with the packaging of one of its products. As the company sells more, the packaging costs increase in direct proportion to sales. Conversely, when fewer of these products are sold, packaging costs will decrease. The same goes with energy-intensive products. That is the nature of variable costs.

When you don’t know your variable costs you can’t be sure how to price your offerings, your profit margin, or whether to take on a new project to make a profit. This knowledge gap seriously hampers your business decision-making and your problem solving.

If you underestimate your variable costs, you could lose money on every unit; this is the most serious situation. It is a total drain on cash and it's a real business killer. When you don't cover variable costs there is no contribution to overhead and fixed costs. The immutable rule is that all orders must cover variable costs, plus a contribution.

Wow, so many ways to search for those hidden profits in your small business. Remember, it’s not the size of your company, it’s the opportunity for profits and productivity that will decide your fate!

Creating your best profit solutions is my highest priority.

Donna Marie Thompson, Ph.D.

P.S.: For more information please click on the link to get my Special Report: “3 Profit Pitfalls and How To Avoid Them.”

Remember – Just Say No to the Status Quo™

Author's Bio: 

Donna Marie Thompson, PhD is a Small Business Profitability Expert and Founder of Expert Profit Solutions. She is a two-time best-selling author who has spent most of her career problem solving in international management consulting.

Donna Marie has helped businesses meet their profit targets under challenging circumstances. She was a Director at PricewaterhouseCooper's Consulting, and has worked at Booz Allen, as well as local consulting firms. This wide range of experience in businesses of all sizes uniquely qualifies Donna Marie to guide small businesses to discover their hidden profit potential.

Donna Marie earned a PhD from George Washington University, an MBA from Virginia Polytechnic Institute, a CPA in the state of Maryland, and is a Master Practitioner of the Energy Leadership Index.

Get your own copy of the free special report: "3 Profit Pitfalls and How to Avoid Them" at http://www.ExpertProfitSolutions.com.