Increase Profits by Outsourcing your Books

How can your business increase profits by outsourcing its bookkeeping? Profits are more than just revenue minus expenses.

It can be difficult to see how spending money ultimately creates more value and wealth in a business, but we'll break down how it saves time, increases overall revenue, and can help you maximize the profitability of your business.

Opportunity Cost

As an owner, or even if one of the employees within a business is spending time doing the books, we must calculate the total cost. For every hour an employee or an owner spends doing the books, there's an hourly wage, plus the opportunity cost of revenue-building work they could be doing.

For instance, if an owner is paying themselves $50 an hour, and they spend 10 hours getting the books ready per month, that's a $500 cost to the company.

Although the upfront cost we see in the books is $50/hr., that does not account for what the owner is worth to the business. If they're creating new deals and getting contracts, increasing the client base, and helping manage employees to be more efficient, the opportunity cost could be hundreds or thousands of dollars in revenue.

If an owner was worth $1000 per hour to the business, and with as many hours as they'd spend in the books throughout the year, the company loses $120,000 in revenue ($1000 x 120 hours).

With an employee working in operations, their opportunity cost is a little easier to calculate. How much is a company charging its clients per hour?

If an employee spends 10 hours a week in the books, then the opportunity cost is the billable rate per client per hour x 10 hours. With the rate at $200, that's over 24k a year!

Imagine a $24k increase in your company's revenue.

Depreciation

There are unforeseen expenses in any business that can send a profitable business into the red.

Having one or two months like this over a certain period of time can be a trigger for both investors and banks.

Banks are looking at the bottom line to assess risk. If a business is looking for a commercial loan or seeking a line of credit, the bank may deem the business risky if there's inconsistency in the bottom line.

If an investor is entertaining an acquisition, any major fluctuations in the bottom line can impact their risk assessment, especially what price they're willing to purchase a business for.

So, for months that were impacted by large purchases, a business can depreciate the asset over time.

For example, if a restaurant had to replace a large freezer and a grill in the same month. For many restaurants, this would be an expense that meant the difference between a profitable month, and an extremely painful one.

The IRS allows for the depreciation of assets, but the period over which they can be depreciated changes by the type of item.

This is where it's tricky and it pays to have an outsourced bookkeeping service. It's not to say that an owner can't record the depreciation, it's just a matter of whether they'll know whether an asset can be depreciated, and for how long.

Pricing Adjustments

How often do vendors increase the prices of goods in a business?

It's common to see increases in the Cost of Goods Sold. In a lot of cases, even though vendors increase their own prices, a lot of companies won't adjust theirs accordingly.

When the books are up-to-date, owners can look through and break down the price paid for goods and determine if there needs to be an adjustment to their own pricing to keep healthy profit margins.

Uncovering Expensive Processes

If there's an outsourced service managing the bookkeeping, there's a good chance they will recognize cost increases or diminishing profitability over several months.

Let's say a bookkeeper recognizes a 2-3% increase in food costs in just one month. What happened? Why did the cost increase all of a sudden?

A bookkeeper helps identify those changes that may otherwise go unnoticed. It gives an owner a chance to have the increased expense identified, and then figure out where that increase came from.

Understanding Your Tax Liability

By the end of November every year, our company turns over our books to our CPA. We can already project our monthly expenses and income through December and have an estimate of what our tax liability will be even before the end of the year.

That gives us 5 months to plan how we pay our taxes to avoid any penalties.

Since we manage to turn our books in early, the tax return is completed in a timely manner, and we're not stressing about the filing date.

If a business cannot project its EOY tax liability by the beginning of December, it makes a lot of sense to outsource your bookkeeping.

How to keep customers

With unlimited choice at their disposal, many customers are choosing to forgo the lowest price for the goods and services they want in favor of a more satisfying buying experience.

In fact, 7 out of 10 U. S. consumers say they've spent more money to do business with a company that delivers great service.

If you’re hoping to see your business grow, it’s well worth taking the time to understand what your customers really want.

Ensuring client happiness and encouraging customer loyalty can be distilled down to two essential factors:

the consistent investigation and delivery of what’s most important to your customers, and
the quick and satisfactory resolution of any problems they may encounter

The secret to improving customer retention is all about the quality of the customer service your business provides.

It’s simple: the more satisfied your customers are, the more likely they are to not only continue to buy from you, but to recommend your goods or services to others.

Understanding and Measuring Customer Satisfaction

Particularly disgruntled customers are the ones most likely to share feedback in online reviews or through social media.

With as many as 95% of customers sharing their negative customer service experiences with others, your business simply can’t afford not to do everything in its power to encourage customer feedback that’s as glowingly positive as possible.

Making customer satisfaction a priority is the key to:

maximizing your company’s marketing budget to draw in new customers
recognizing and reaching out to dissatisfied clients to reduce customer turnover
boosting company revenues

So how do you figure out if your customers are happy? You start by giving them the opportunity to express themselves.

Regularly engaging your customers through satisfaction surveys that encourage open-ended responses is a great way to uncover vital information about every aspect of your business process – from the quality of your products, to the viability of your shipping and return policies.

And when you combine the results of your surveys with a well-established set of customer satisfaction metrics, you’ll be well-equipped to track the overall health of your business.

Customer Satisfaction Score

The CSAT is a simple way to measure how happy your customers are with the services they’ve received from you. Customers rate their satisfaction based on a small range of numbers (from 1 for very dissatisfied to 5 for very satisfied, for example), and your company’s score is determined by averaging the results.

Customer Effort Score

The CES measures how easy it was, or wasn’t, for your customers to have a product or service issue resolved. This is a particularly important metric because studies like those conducted by the Customer Contact Council demonstrate that customer loyalty is directly related to reducing customer effort.

Your customers select a number from 1 to 7 that best represents their level of effort in getting their problem fixed – from a very low amount to very high – and your company averages the results.

Net Promoter Score

To help predict your customers’ level of happiness down the road, the NPS measures how likely they are to recommend your company to a friend.

This score, most often based on a range from 1 to 10, is a great way to evaluate customer loyalty and it can also help to predict the future growth of your business. To obtain your company’s score, you’ll deduct the percentage of non-promoters (typically scores of 1-6) from the percentage of promoters (scores of 9 or 10).

Measuring and Improving Customer Retention

Once your customer satisfaction metrics are up and running, you can move on to evaluating the success of your various customer service efforts, responses, and adaptations. Customer retention metrics allow you to determine how many of your past customers are sticking around to make repeat purchases.

Research confirms that it’s far less expensive to retain a customer than it is to acquire a new one, so your business return on investment relies heavily on making sure you keep your current clients smiling and coming back for more.

Measuring your Customer Retention Rate at least monthly, quarterly, and annually is the best way to benchmark your company’s performance in terms of how well it’s hanging onto its clients.

The CRR is measured as a percentage, and by plugging some basic information into a simple formula, it can show you how many customers your business retained within a specific period:

Customer Retention Rate = [(EC-NC) / BC] x 100

Where,

BC = the number of customers your business had at the beginning of the month or year

NC = the number of new clients you gained during the same period

EC = the total number of clients you had at the end of the same period

Remember, measuring and analyzing alone aren’t enough. Your business must respond to what it learns from its clients – especially the dissatisfied ones.

While it can be difficult to face criticism, negative feedback is a great opportunity to understand where your company could be doing better and to take steps to make that happen.

Your customers want to know that their input is being heard, and the more your business can do to convince them of how highly they’re valued, the better it will be for your company’s bottom line.

Four ways to handle difficult clients

"Difficult clients are a part of business. How you handle them, sets you apart."

You know your business offers a quality service. You know you work hard to keep clients happy. But despite your best efforts, you’re bound to cross paths with the occasional customer who feels they’ve been wronged by your company. The best way to deal with difficult clients is to remain professional, take steps to defuse any conflict, and strive for a resolution that satisfies both you and your customer.

Reasoning with an Unreasonable Client

We’ve all been there: desperately trying to reason with someone who’s beyond being rational. Logical arguments won’t help. And because our brains have trouble distinguishing between physical threats and emotional danger, difficult people are not only frustrating, they can occasionally prove frightening to deal with.

So how do you stay composed enough to neutralize the situation at hand while hanging on to your personal dignity, your professional reputation, and your customer’s business? Consider these 4 proven ways to deal with difficult clients the next time you’re forced to sort out a complaint.

1. Encourage Them to Vent While You Listen

If you think back to the last time you took part in an angry discussion, you’ll probably remember how important it was to feel heard. Disgruntled clients feel much the same, which is why it’s critical to let them vent while you listen.

Engaging in careful, active listening is all about concentrating on what your customer is saying, so you can:

fully comprehend the points that they’re making,
remember what they said once they’ve finished, and
validate their feelings by summarizing their concerns

Creating a supportive space for your customer to share their frustration will help set the stage for turning difficult conversations into simple, empathetic solutions.

2. Stay Calm and Objective

Listening to someone beat up on you or your business isn’t easy. But remaining objective while they have their say is the only way to determine which response will get them back to their happy place, faster. When a customer is emotionally charged, defending your actions won’t help – so try this instead:

Do your best to stay calm by breathing deeply and slowly.
Recognize that angry customers sometimes go off on a tangent. It’s your job to sift through their outburst for the specific grievance that applies to your business.
Stay outside the dispute as much as possible by focusing on delivering a solution – even if the problem doesn’t involve you directly.

Successful business owners care about their clients. But the truth is that you’ll be in a better position to help them if you remember that most criticisms aren’t personal. Instead, try looking at customer complaints as an opportunity to learn more about the areas where your business can do better.

3. Find Out What Your Customer Wants

To temper conflict quickly and effectively, you should make every effort to view complaints from your customer’s perspective - and use language that communicates clearly your desire and intention to help. After listening to your client’s concerns, the best course of action includes:

apologizing sincerely for not meeting their needs,
confirming your understanding of the issue by repeating it back to them, and
finding out exactly what they expect you to do to resolve their dilemma

Does your customer want a refund, a replacement, an upgrade - or some other acknowledgement of the inconvenience your company has caused them?

If a client’s expectations are blatantly stubborn, unreasonable, and completely out of sync with the size of their problem, you may need to review their history and carefully weigh the value of continuing to do business with them. Only then will you be able to decide whether it’s worth meeting their demands, or whether you should perhaps try negotiating more moderate terms.

4. Propose a Solution That Works

Once a customer hears that you’re prepared to fix their problem quickly, and in a way that works well for them, they’ll usually be inclined to forgive, forget, and move on. You should outline exactly how you plan to make things right, and when your client can expect to benefit from your solution.

In most cases, demonstrating your leaderships skills by taking responsibility for your customer’s dilemma will serve as a powerful antidote to their anger. Just remember that once you’ve promised a certain course of action, it’s vital that you follow up and deliver in full, and on time.

Dealing with difficult clients frequently comes down to being flexible in your approach to problem solving. And since no two customers are exactly alike, listening carefully to their issues and proposing fitting solutions is essential for restoring their faith in your business. Once you’ve successfully worked through an awkward dispute, don’t forget to document what happened and discuss it with your team before taking some well-deserved time out to de-stress, relax, and recover.

Page updated

Report abuse