Profits Improvement

Profit Improvement

A business cannot survive if it is not able to produce profits and generate cash. Many businesses fall into the trap of chasing top line revenue growth. As the top line grows, the business needs more people, more equipment and more working capital. It is easy to lose control of costs and quality that threaten the viability of the business. The key to building a successful business starts with cultivating a culture of continual improvements with focus on the bottom-line and taking a medium to long term perspective in developing a sustainable business model.

Profit improvement begins with a clear view of the current business operation. This may seem obvious but many businesses are often caught by surprises. Areas where we typically find variances include the actual cash position, true profit margin, the actual rate of expenses, slow moving inventory, customers defaulting on payments, sales and marketing spending not producing the desired outcome. Understanding the key performance indicators is critical in assessing the performance of a business and directing resources to where it matters most.

Every successful entrepreneur knows that there is nothing more important than keeping a close eye on the bottom line. Build a culture that continuously seek new ideas to do things faster, cheaper and better.

Some income-boosting strategies include:

(a) Exploring new markets for your business and looking for ways to improve your customers outreach program;

(b) Creating more awareness of your products and services, whether by winning easy publicity, arranging an open house or preparing direct mails;

(c) Creating new products or improving existing products that will excite the customers;

(d) Cutting costs that will not result in quality being compromised;

(e) Incentivising your sales personnel to increase revenue;

(f) Tapping on technology to increase productivity and improve your work processes;

(g) Strengthening your sourcing efforts and negotiating better terms with suppliers; and

(h) Reviewing your loans and find out if you can secure more favourable terms for interest expense savings.

Other areas that you can tighten

Create a cost-conscious culture and spend wisely. When managing your business costs, consider the following areas:

(a) Inventory - Conduct periodic review of your inventory. This may help you to determine slow moving products which you may want to consider discontinuing. You may also consider placing orders only for slow-moving products when you have committed orders from customers. Better inventory management helps to reduce inventory holding cost.

(b) Vendors - Negotiate with long time suppliers for better payment terms and/or discounts, especially if you have been prompt in your payments.

(c) Energy - Examine energy costs and find ways to reduce expenses. Consider turning lights and equipment off when not in use; invest in energy-efficient equipment and technology that reduce the electricity consumption, for example, motion sensors or automatic timers for lighting or adjust your thermostat settings.

(d) Staff - Before you hire, consider what can be done to streamline processes and increase staff efficiency. Understand the job scope and work load of your staff will enable you to redesign work flow, eliminate duplicate efforts. In the process, you may be able to split the additional workload amongst existing staff members or to enlist the help of part-time, temporary or outsourcing services to tide you over a momentary peak.

(e) Office supplies - Constantly review if you can do away with unnecessary subscriptions and services. When re-ordering office supplies, source for suppliers offering discounts and consider only no-frill items. Reduce stationery wastage by reducing the usage of items such as paper by going digital.

(f) Space - Simplify and consolidate your operations. Consider either leasing or subleasing unused office space; moving to a more affordable location or renegotiating lease terms.

(g) Travel - Consider using web-based mobile computing, web meetings and other virtual collaborations to save on travel costs.

Conclusion

Master the art of increasing profitability and you will find your business more nimble and adaptable to market changes. You will be able to forge stronger relationships with staff, customers and lenders who will be there to support you in time of economic downturn.