Many businesses recently reviewed their profit and loss statements and took a closer look at the business’s profitability. This analysis usually prompts the question “how to increase my business profits?” Although this question could only be answered after becoming familiar with your particular business, below are 3 areas where small changes, if done right, could increase your profitability.
- Decreasing Bad Debt
If your business model does not require customers to pay for products or services in advance, collecting on unpaid invoices is likely something you are all too familiar with. However, collection itself comes at a cost to your business. Not being able to recoup that collection cost limits most businesses’ incentive to pursue collection, rightfully seeing it as throwing good money after bad.
You can tip the collection scale in your favor. The default rule that each party bears their own attorney’s fees may be modified by statute or by contract. That means that where the law does not provide for recovery of attorney’s fees, you and your customers could mutually agree that if you and your customer find yourselves in a dispute, the winning party could recover their attorney’s fees from the other party. The risk of having to pay the other side’s attorney’s fees will usually drive the parties to reach a quicker resolution, especially when one side’s case is stronger than the other side’s defense. Of course the weight of the attorney’s fees clause swings both ways, so discuss this with an attorney who knows your business well.
- Limiting Liability to Customers
The risk of unhappy clients or customers is a cost of doing business and depending on your industry, that cost will vary greatly. People get injured, things don’t work quite right, or sometimes you did absolutely nothing wrong but wind up getting blamed for someone else’s mistakes.
Here again, contracts can help you mitigate that cost of doing business. A qualified attorney could help you draft an enforceable release and waiver of liability where appropriate. Additionally, you and your customer may agree to limit the damages that could be recovered in the event of a dispute such as limiting recovery to the good of services provided, for example. This could significantly decrease your exposure by taking away the likelihood of being on the hook for claims like lost profits that could make a small claim balloon into an unaffordable one.
- Saving Money on Payroll
Payroll is a significant cost to businesses and most will look for ways to keep payroll low to the extent possible. There are definitely ways to do it such as using independent contractors, temporary or seasonal workers, and limiting overtime hours worked.
However, using any of the above methods to decrease payroll must be done with extreme caution and be done correctly. Otherwise, your business is risking more than it will ever gain that what it saves in cutting payroll expenses.
Schedule a call if you have questions about any of the issues discussed above.
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