How to manage your business effectively - Part 2
Part two of our three-part interview focuses on the changes that a business could make to improve their income and obtaining credit.
What changes could a business implement to increase their income?
Some easy suggestions for a local business to potentially increase their income are:
- Add complementary services - Adding complementary services or products may help you gain new clients, as well as maintain existing ones.
- Extend your geographic market area - Many small businesses limit their marketing and sales efforts to the immediate town near their business. Don’t assume another area is being served without research.
- Enter into co-operative sales agreements - Contact other businesses that sell a complementary product or service. Request they promote or sell your products, and vice-versa.
- Hone your pricing strategy - Price is not always the most important factor in a decision to purchase a product or service. A low price can represent two things - a 'bargain' or 'low quality' in the buyer’s mind. Before implementing a pricing strategy, know how your customers feel about your product. Product prices constantly change, so don't be reluctant to adjust your prices to maintain profitability. An immediate price increase will bring additional revenues to your business and does not always negatively impact sales. Similarly, a price reduction will not always stimulate more sales. Know how your products compare with similar products, as well as the prices of competitive products. This will allow you to best position your prices.
- Bundle products - Do you sell products that naturally go together? Consider selling them as a package with a discount.
- Add, reduce, or eliminate any additional charges - Consider amending or removing delivery, or any other charges for a specific timeframe. This could help stimulate sales.
- Offer special discounts - Discounts may create a buying opportunity for customers. Discounts can be applied in a number of ways:
- Quantity discount: When two or more of the same product are purchased at the same time
- Tie-in discount (bundling): When two or more products are purchased at the same time
- Seasonal discount: When products are bought within a specific time-frame
- Conditional discount: When the products purchased are used / reconditioned / damaged / end of line / discontinued
- Consider using discount websites, like groupon or treat ticket to promote your business
What would you advise a business to do if they find themselves in the position of needing to obtain credit?
The more frugal you can be when setting up and running your business, the less funding you'll need. Make cost control a crucial part of your business plan from day one. This should include detailed projections of likely expenses. Regularly reviewing costs should be top of your to-do list. If possible, try to ensure as many fixed costs as possible are flexible, so you can scale up or down as your business progresses.
If you still require business credit there are a number of sources to consider. Ensure the money you borrow can be repaid in line with the agreements that you make with separate lenders. You can find a comprehensive listing of various types of credit available on the Better Business finance website.
Some of the main options available for credit are:
- Borrow from friends and family - This option could provide more flexibility, as you know the lender or investor personally. For instance, they may agree to holding off on repayments for a length of time. Borrowing money is a serious commitment on both sides, so everyone involved needs to be clear about the terms and conditions of the deal. Consider drawing up a formal contract with the help of a solicitor. This will help everyone know exactly where they stand.
- Business finance from a bank - Banks offer a range of ways to help you finance your business. These include business loans, business overdrafts and business credit cards. Your application will be subject to credit check status on application, and the bank may require business cashflow projections. Ensure when providing these figures that you have made adequate provision for the repayment of the credit you are requesting.
- Borrowing against assets - You can borrow money against a range of your company's assets, including property, inventory or equipment, or even your unpaid invoices. The amount you can borrow will depend on the value of the asset, but this can be an effective way of raising cash for working capital or investment. Business funding for equipment or property is available through a range of leasing deals and commercial mortgage.
- Business grants - A range of government grants are available. Some can be linked to investing in specific business activities, or for the business to invest in a particular area. In some cases grants don't have to be repaid, but you will have to meet strict qualification criteria. Also, often you will need to match the grant with money raised from other sources. You can find information on grants available, eligibility and how to apply here on the nibusinessinfo website.
- Investment - Offering a share of your company (equity) for an investment by a third party can be an effective way to raise cash. In contrast to a business loan from a bank, you won't have to make any repayments on the money invested. However, angel investors and venture capitalists may strike a hard bargain in terms of the share of your company they take in return for investment. This kind of business finance is often used for financing growth plans.