The ultimate success of any business is dependent on making a profit to provide a return to shareholders and create wealth for future investment. Profits allow the business to continue, to grow and to prosper for the benefit of all stakeholders. Profit improvement is something that all businesses are continually striving for, but often without a clear strategy.
There are two basic ways to create profit improvement. The first and the usual focus of an SME is to look to reduce its expenses. However, this strategy will only deliver an increase in profit for a limited period of time. This is because costs are a finite amount and reducing costs to far will impinge on the critical mass of a business to achieve its productivity and ultimately its sales potential. While it is good business practice to monitor and control expenses at all times, it is highly unlikely to achieve long term profit improvement.
The best strategy is to achieve profit improvement through growth in sales and/or increased gross profit margins. The ability to grow sales and increase gross profit margins is a much stronger and longer lasting profit improvement strategy and theoretically has no limitations.
Assess internal controls and budgeting in relation to expenditure.
Improve and strengthen internal controls where required.
Review forecast and the review process for preparing forecasts.
Control and reduce expenses where necessary.
Investigate new material suppliers and attempt reduction in expenses that are related to the cost of sales.
Prepare a marketing plan that will open new markets and product lines.
Investigate ways to expand sales and create new markets – there are only '4 Ways to Grow Your Business'. If you are interested in this please contact us.
Forecasts are established and monitored.
Internal controls are in place and controlling expenditure.
Excessive and redundant expenses have been identified and either reduced or eliminated.
Suppliers have been reviewed for pricing and appropriate negotiations have taken place that will reduce the cost of sales and increase gross profit margins.
Existing sales channels are maximised.
New sales channels have been identified and are being exploited.
New markets and product lines have been identified and are being exploited.