3 Ways to Improve Your Company’s Profitability Now
I’ve never met an entrepreneur who didn’t want to improve their company’s bottom line, and in theory, it should be pretty easy to accomplish. All you have to do is make sure revenues exceed costs and it will be smooth sailing, right? Not exactly.
In reality, no matter how hard our team works, or how bad we want it, squeezing more from our small markets is like fishing at sea without a net for Caribbean entrepreneurs. In addition, once you’re serious about growing your business you can’t use the simplest definition of profits. You should instead consider adopting the Generally Accepted Accounting Principles (GAAP) for accounting profits which take into consideration the explicit costs of doing business such as operating expenses, depreciation, interest, and taxes.
So while improving profitability may not be easy, it is also not impossible. And here’s the good news: there are a few things you can do today to transform your net financial position. Here’s how:
- Set a clear, documented goal for profitability for each year. Break that goal down into monthly targets that you manage religiously. It may not seem like much, but when done with consistency, it can result in a profit upswing. Many business owners don’t treat profit targets as a priority. They have an idea of the amount they want to earn, but the strategy and plan for achieving it is rarely defined. Without documentation and a fleshed out sales and marketing plan, you’ll likely leave huge profit potential on the table.
Here’s an example of how you would implement this strategy. Let’s say you decided on a specific goal of earning $1,500,000 in profits for the year. You would then break down the annual amount into a monthly target of $125,000. Then, you must state which products, services, or categories of products and services from which these revenues and profits will be generated. Next, you would need to outline the sales and marketing tactics required to accomplish the monthly objectives and the human/financial resources that will get you there. Finally, at the end of each month you would review the company performance in terms of projected and actual, trouble-shoot challenges, carry forward best practices, and ensure you are within striking distance of the goal. In a very practical way, once you set a firm profit target and hold your business accountable for achieving it on a monthly basis you become more deliberate and focused on earnings and results.
- Do a business process review directed at increasing efficiencies, lowering costs, and improving profitability. On the surface, this may also seem simple or obvious, but it is extremely powerful. A business process review requires you to outline all the processes involved in your business operations – externally from the customer and stakeholder perspective, and internally from the employees’ perspective. You then assess how you can streamline and improve the efficiency of each process. This activity often reveals duplications, waste, and ineffective processes or use of resources. Some adjustments and improvements may result in immediate savings to the business; however the best way to manage expenses in the long-term is to treat them just as you would treat revenue targets. Clearly define them and proactively manage them each month.
- Consult with an accounting expert or acquire the financial expertise necessary to fully appreciate and skillfully manage finances of the business. This includes realistic budget and forecasting, proper pricing, determining the appropriate mark-up or margin, recording, analyzing, and using financial data to make decisions and much more. The fact is, it is virtually impossible for your business to achieve maximum profit potential if those who lead and manage it are not completely on top of the finances.