I see businesses continually focusing on increasing sales and turnover when the most important part of a business is its profit. The more profitable a business the greater its value. And why are we in business? To create greater business value.
Do you want to continue to grow your business year on year but make less money? I see the following all to often with businesses that are growing: sales increase, wages increase, overheads increase and profits diminish. So how can businesses increase profit? Through the following:
The common area of focus for business owners is to increase sales in order to improve profitability. Increasing sales is not a strategy that should be looked at in isolation. Businesses should have a profit improvement strategy that not only focuses on sales but also on pricing and cost management strategies.
Examples of some of the questions I would ask include the following. If you sell many different products, which products are generating the greatest gross profit margin compared to sales? Is there an inverse relationship here? In other words are your greatest sellers your worst profit generators? Should you be reviewing your pricing strategy for these products? Do you know the exact margin on each product sold?
I am not trying to paint a picture that increasing your sales as a profit improvement strategy is bad. Increasing sales is a great profit improvement strategy however this should not be your only area of focus. Sales are great and every business needs them to survive but understanding all the metrics that affect your business’ profitability is key before making any decisions on how to improve your bottom line and business’ value.
Another key point is around cashflow. Although profit and cashflow are two very different things it is often common that poor profitable businesses have poor cashflow. It must be noted that different variables affect cashflow but if you are not making any money it is highly likely that your cashflow is suffering.
Do you as the business owner have enough time to undertake detailed profit analysis? Or does your accounting department have the time or necessary skills and expertise to be able to undertake this task?
Let me take the time to analyse your business’ profitability and work with you in generating a detailed profit maximising strategy. I can monitor the progress of the strategy and allow you, the business owner, to focus on growing your business while I take care of the finance function.
Let me work with you in building a profit maximising strategy by: