Profit Maximisation

By: Peter Jonsson Business & Banking Consultant  27-May-2013
Keywords: Business Consultant, Profit Improvement

Would you rather purchase a business with a $100,000 profit and a $5,000,000 turnover than a $150,000 profit and a $1,500,000 turnover? I see businesses continually focusing on increasing sales and turnover when the most important part of a business is its profit. The more profitable the business the greater its 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: - Increase sales - Increase prices (gross profit) - Reduce overheads 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? My Solution I am business minded and have years of experience working with and in a range of different businesses. 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: - Analysing the business’ gross profit to determine opportunities and weaknesses. - Reviewing gross profit by product, customer, sales channel, sales person etc. - Reviewing systems and processes to ensure accurate information being reported. - Analysing the business’ Key Performance Indicators (KPIs). - Determining the business’ breakeven point. - Reviewing distribution channels to ensure cost effectiveness of delivering products to customers. - Reviewing sales channels to identify opportunities and weaknesses. - Analysing pricing strategies with customers and distributors. - Analysing pricing arrangements with manufacturers and suppliers. - Researching alternative supply arrangements. - Reviewing exchange rate hedging policy if importing or exporting products. - Analysing overheads to determine opportunities and weaknesses. - Analysing seasonality affects on the business if any exist.

Keywords: Business Consultant, Profit Improvement

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