The aim of every business is to make money. While it may take some time to break even initially, without regular, consistent injections of cash, paying your employees and delivering quality services to your clients is just not possible.
So, how do you make your business live up to its full profitability potential?
There are a few factors to consider. Some of the most important profitability drivers include pricing strategy, talent acquisition, cost management, technology investment, and financial forecasting and planning.
Service businesses work on a client-by-client basis. This means that each project needs to be handled with the highest possible level of efficiency and professionalism in order to maintain cash flow.
But maintaining cash flow and making strategic financial decisions isn’t just about delivering consistent, quality work to clients. It is also about creating internal systems that support employees’ well-being, encourage growth, and promote functional scalability.
In this guide, we’ll look at which profitability boosters can benefit companies and how to establish business growth strategies that can withstand the test of time.
The Importance of Financial Management in Businesses
Financial management plays a significant role in businesses. Cash flow is the bread and butter of any business because it facilitates every tool, employee salary, tech investment, company asset, and everything else that money provides in terms of security and sustainability.
Robust financial management also has a powerful impact on the overall growth and profitability of a business. Without regular cash flow, you cannot expect your business to reach its future goals.
Great financial management is crucial for the success of any company. Here are some of the most important ways that financial management benefits and supports businesses:
- Empowers more innovative campaigns – When you have a strong financial management system, it is easier to allocate healthy budgets for innovative campaigns and creative concepts.
- Facilitates scalability and business growth – Growth is essential for any sustainable business, and good financial management is the key to it. Having access to robust financial records and resources enables smoother financial management and higher returns on investments.
- Can improve customer satisfaction – When you’re in a strong financial position, your business can afford to invest more in quality project delivery (more employees, faster turnarounds, better services etc.), thus enhancing customer satisfaction and promoting higher client retention rates.
- Takes the pressure off managerial staff – A lack of sufficient financial management can put a lot of pressure on managers and supervisors, leading to high stress and burnout.
- Gives employees access to better tools – Employees are much more productive and motivated when they have access to the right tools and technology – neither of which are possible to use without a sound financial management system.
Ultimately, great financial management is about creating a stable, sustainable cash flow that allows employees to produce better work and affords clients a more satisfying and positive experience. It also keeps your competition at bay and prevents your business from going under during tough times.
Key Strategic Financial Decisions
By now, it is evident that businesses cannot succeed without making the right financial decisions. But this is often much easier said than done.
How can your business make financial decisions that are in alignment with brand goals and realistic for your current growth level without risking destabilisation? The key is to focus on a few core strategic decisions relating to the management and sustainability of your business.
Fortunately, there are various strategic financial decisions that can boost profitability. By focusing on these essential points of interest, you can develop a financial strategy that is primed for growth, profitability, and success in general.
1. Pricing Strategy
When considering your financial strategy, one of the first things you should look at is your current pricing system. If you are charging your clients too much, it could cause you to alienate yourself from the market and push your target audience into the hands of industry competitors.
However, dropping your prices too low can also have consequences.
Very low prices may attract some clients, but they also communicate a low value expectation to your audience, which can discourage blue-chip clients from wanting to hire your business. Creating a pricing strategy that strikes a balance between these two extremes should be your goal.
There are lots of different ways to go about developing a pricing strategy that works for your business, starting with choosing a structure that works for your business.
2. Cost Management
What are your monthly and annual costs? Most service businesses require a lot of different tools and resources to function successfully. This makes cost management a difficult albeit necessary part of the financial management process.
Consider what your routine costs are and whether anything can be done to reduce them in order to boost profitability and drive business growth in a more sustainable way.
3. Investment in Technology and Tools
These days, just about every competitive business relies on technology and tools to function at an optimal level and maintain consistent cash flow.
Some of the most important technologies and tools for service businesses to invest in include:
- Productivity or project management tools
- Data analytics software
- Customer Relationship Management (CRM) tools
Together, these tools will help your company enter the upper echelon of successful businesses that are capable of dominating the market.
4. Talent Acquisition and Retention
Employee management is one of the most important aspects of effective financial management and the promotion of sustainable growth in any field. Your business needs to develop a strong talent acquisition and retention system to facilitate scalability.
Without a motivated, loyal, and dynamic team of employees, your business won’t be able to make a significant impact within your industry effectively.
So, how do you acquire and retain great talent? You do the following:
- Provide training and career growth opportunities – Growth opportunities are one of the most highly sought-after employee perks of the 2020s. Employees want to know there is space for them to expand their knowledge and progress in their careers.
- By providing free training and upskilling programs, you can become a much more appealing business to jobseekers, and once you have hired them, they may be more likely to stay.
- Establish a strong onboarding process – Set the tone for a long, healthy, and mutually beneficial relationship with employees with a strong onboarding process. Provide new hires with everything they need to find their place in the business and understand their roles completely.
- Use the right platforms to search for employees – Not all job-hiring platforms are made equal. Currently, the best platforms for recruiting and screening potential hires include LinkedIn, Indeed, Glassdoor, and CareerBuilder.
With a comprehensive and modern approach to talent acquisition and retention, you can create an environment of consistency and productivity in the workplace, thus boosting profitability.
5. Financial Forecasting and Planning
The final key to making strategic financial decisions is to invest in financial forecasting and planning. Without a clear understanding of what to expect from the near and distant future of your industry and market growth, making strategic financial decisions is nearly impossible.
You can track financial forecasts in your industry by following online news, keeping tabs on competitor behaviour, and most effectively – using financial forecasting software that does those things for you.
Case Studies
Making strategic financial decisions is about much more than just getting your finances in order. It is also about thinking outside of the box and getting creative about how to make the best of a bad situation.
Take a look at these case studies of businesses that have successfully boosted their profitability by making strategic financial decisions:
- Slack
Slack is a remote team collaboration software tool that enables teams from around the world to communicate, share, and collaborate on projects via a centralised online platform. However, they were initially a game company – until they made the bold financial decision to shift their attention to what made their gaming model so popular: communication.
Slack recognised the potential for financial growth by identifying who its organic audience was. The platform was able to jump from 15,000 users in 2014 to over 10 million in 2023, making it one of the fastest growing and most profitable tools of its kind in today’s marketing landscape.
- Hubspot
If you’ve ever heard the term “inbound marketing”, you can thank Hubspot. This global-reaching CRM platform has clients that bring in a minimum of $6,000 per project, making it one of the highest-earning and fastest-growing CRM platforms in the world.
Hubspot really practices what it preaches, with a stamina for growth and scalability unseen in most of its competitors. They have used the strategy of inbound marketing, tailored CTAs, and early adoption of webinars to get ahead of other companies in the marketing industry.
The Takeaway: Strategy Drives Profits
Finding ways to grow your business’s financial growth and establish sustainable scalability strategies is no easy feat in the digital age of perpetual change.
But with the right strategies by your side, anything is possible – and as you can see from industry successes like Slack, Hubspot, OMG Center, and hundreds more, any business can achieve a state of sustainable profitability over time.