The Piers Linney Column - Leveraging Yourself & Your Business

The UK has 5.7 million small and medium-sized businesses. Of these, 95% employ ten people or less, while 75%, around 4.3 million, have no employees at all. In other words, three-quarters of our small businesses are sole traders. When you own a small business, the challenge you face is how best to use the resources available to you as efficiently as possible to generate income, revenue and profit. The questions small business owners invariably ask themselves are how they can make time, find time, or save time? And how they can grow their business to coexist with their lifestyle while satisfying their ambitions.

If you operate in a world where your income depends on the number of hours worked. Such as charging your clients or customers a daily or hourly rate, then your profits will always be limited as 'Income = Time multiplied by Price'. If the aim is to increase the financial return on your efforts, it's time you leveraged your skills and resources proficiently.

Five Points You Should Consider!

Create More Time - Tech is Your Friend

You must focus your attention on the parts of your business that create the most value. More often than not, that is the delivery of your service, by you and you alone. Whether freelancer, landscaper, consultant or beautician, whatever your particular expertise or trade, you may need to look at restructuring your business.

For example, a salesperson who regularly meets new clients and successfully wins new business should be concentrating on the aspect of their work that secures sales; in this case, that would be an excellent pitch, but what comes before the pitch and after the sale? The answer is weeks, days and hours of research that go into creating a qualified database of clients or businesses that fit the demographic you're targeting. Then there are time-consuming and mundane tasks to consider, such as chasing invoices, providing quotes and dealing with expenses. 

Right there is where you could optimise your time by making better use of technology and automation. You may need to invest in software or outsource parts of your business and bring on an employee. If so, do your due diligence and calculate whether that software or employee is cost-effective.

Companies of all sizes use processes and systems that could be improved, simplified, automated or tweaked to become more efficient. Delegating outsourcing and the use of software will allow you to dedicate your time to what you're best at and, in turn, increase value.

Pricing & Margins 

Another variable to consider if your income depends on an hourly or daily rate alongside time spent working is the price you charge for your time, products or services. Simply put, if you increase your fee, you make more money, but do be sure not to price yourself out of the market. So, once you have maximised the time you have available, turn your attention to your pricing strategy.

Are you pricing correctly, and how does it compare to your main rivals? Have you fallen into the trap of discounting too heavily; are you undervaluing your products and services? In general, small business owners make the mistake of under-pricing their products and services, which is why you must compare, contrast and test your pricing. Look at breaking down your pricing structure and charging different amounts for each service you provide. Your concern may be that if you increase your prices, you will lose custom, but if you've analysed your pricing strategy in detail and found the optimum ergo maximum figure for your business. Yes, you may lose one or two customers, but as you retain old customers and bring in new, your overall income will increase.

Digital Services & Recurring Revenue 

Recurring revenue or subscriptions add more certainty to any business equation, a fact not lost on Jeff Bezos, founder of Amazon, which generates over $25 billion in revenue annually. Successful companies use and create recurring revenue models because recurring revenue will inevitably outperform one-off sales. Spotify offers you a free service, but if you wish to be rid of repetitive ads that disrupt your listening experience and the restrictive use of the skip button, you must tie in and become a premium subscriber. That is how you leverage a 'freemium' user. Car dealerships are also in the business of subscription. They may go by another name, Long-term hire or rental, Flexi-lease or rental but subscription schemes is what they are. The customer is tied in as you take a car for as long as you like, and when you wish to swap it out, your monthly payment rolls over. If your business can't create a recurring revenue stream, you should develop your business model to encourage reoccurring income.

Discover more about your customers, then take that information and create purposive incentive schemes. Newsletters, small monthly fees for delivery, offer an upgrade on a trial basis or a small reward when a certain amount is spent. Think about it, 1,000 followers or subscribers charged £10 per month soon ads up. Better still, those subscribers could be anywhere in the world, and that's the power of digitalisation.

You should know that recurring revenues and scalable digital services are favoured by investors and venture capitalists. Here investment may be needed early on, but once the platform is up and running, the marginal cost of adding a new customer becomes negligible.

SaaS or Software-a- a-service gross profit margin can be as high as 90%, and if the market is large enough, your profit potential is enormous. Digital also opens up additional routes to market via advertising, partnerships and affiliate schemes. Consider partnering with another company, not a rival, of course, but a business that compliments yours and whose customers have a similar profile to your target audience. Remember, the secret of success with recurring revenue businesses is customer retention, not just acquisition. If your sole focus is securing new customers or clientele, you'll end up re-filling a bucket that has a hole in it.

If your business model is such that 90% of your revenue stems from one-off sales, you could still add 10% through recurring or reoccurring income. Digital technology is evolving all the time, and it's a game-changer for any business, no matter the size.

Operational Leverage

I'll risk sounding like I'm quoting from a management textbook and say operational leverage can apply to any business. 'Operational leverage' is usually linked to fixed costs, and if you are a small business owner, fixed costs are something you want to avoid. Your cost base should move in line with revenue and variable costs. Some businesses have to invest in assets, such as commercial property and vehicles, office furniture and machinery. As your income increases, these fixed costs become a smaller proportion of your overall cost base. 

As you scale your business up, it’s time to box clever, especially with suppliers. The best time to negotiate lower prices and seek improved payment terms is when the orders you're placing are bigger.  These are the things that will have a positive impact on your cash flow. Growth also means doing more with the resources you already have. You may face a step change in costs if you hire new personnel or move to larger premises.  Again, do your due diligence and be sure you can leverage your higher cost base into increased revenue and profit. The key is finding ways to do more with what you already have.

Sizing Your Business Correctly

Mental health is important; we all need to decompress and do what we enjoy, so making sure your business is at a size you can manage comfortably is critical. Yes, a small change can make a massive difference to your profits, but not everyone wants to invest time and money into 'leveraging up' their business.

Rapid growth and managing increasing numbers of staff may not suit you, but there are ways you can create more value and personal wealth without having to run a sprawling all-consuming empire. Size your company so that it is always within your control. Size your company so that it is always within your control, matches your aspirations and allows you leisure time with family and friends.

Remember, the key to increased profits and an improved lifestyle is all in the formula. Develop a business that isn't restricted by the Profit = Time x Price principle. Change that formula, so it becomes Income = Time x Price x Leverage, and you will see a shift for the better in your bottom line.

Piers Linney is the Founder & CEO of Moblox, the tech and tools platforms for owner-led businesses.