How Do You Go About Building a Sound and Profitable Base

How Do You Go About Building a Sound and Profitable Base

1. Analysis of balance sheet.

A thorough analysis of the balance sheets will reveal areas where quick correction is needed. Are the most important ratios for business proper? If not, an action plan must be developed that can bring the recurring issues like outstanding debts and stock in check. It’s unreasonable to expect investors to support your strategies for the future unless you have plans that demonstrate your business is in good shape.

2. Margin analysis.

Don’t leave the analysis of margins and explanation of variances in margins completely to your accountant. Make sure you are focused on your thinking. Based on my experience with loss-leaders in difficult economic times, they can lower the cost that can be achieved for your entire product line. Don’t forget the importance of margins as your retained profit or the difference between the net costs paid for your product and the cost of providing and maintaining the product to the customer. Thorough knowledge of your current product cost and a breakdown of the costs involved is crucial. An examination of the product margins that your company has achieved will concentrate all your management’s attention on the contribution of each product to that margin. You must ensure that there are plans that will result in acceptable margins for each product and be diligent in defending the margins.

3. Analysis of the price of a product.

The prices that are achieved on the market for your products are under pressure to lower. Examine the prices reached for your products in the marketplace, both by your own business and your competitors. You must convince yourself that your goods are priced competitively. Make sure you’re at par with the highest market prices. Then ensure that your sales team maintains price control.

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4. Analysis of salesforce.

In tough economic times, sales personnel must perform what they’re paid to do, which is to sell. They must be able to show clients that they are aware of the advantages of your product and demonstrate the way they’re equal to or superior to competitors. Stop the price-related argument one and for all, and then concentrate on the customer experience and quality control.

5. Control of costs.

It’s the other side of the equation of profitability. Make sure your management team is aware of and accepts the responsibility to limit costs within the confines that their budgets allow. Be sure that your budgeting process is flexible enough to accommodate revisions when the sales are not meeting expectations. If your sales volume is lower than your budget, then your only option to make profit levels that are in line with the budget is to cut expenses by a higher percentage than the gap in sales. While this may sound simple but management teams are often unable to recognize the necessity for flexibility. Rivalries between departments can place the blame for financial problems on those in the sales department. Management must support the sales team by cutting expenses and aggressively pursuing ways to cut costs. The most successful business leaders of today require a strict approach when setting goals that do not just capture market share but also demonstrate improvement in the profitability of their business. Organizations operating at a low level of profitability require swift corrective action before the corporate parent company takes drastic measures such as closing or selling the business. For smaller companies, it is imperative to act prior to the time when reserves expire. Nothing boosts confidence in business and enables support more than a steady cash flow and substantial profits.

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In the end, be aware of danger signals as early when you are able to.

Don’t wholly delegate business analysis to your accounting department. Make sure your management team takes responsibility for ensuring that the bottom line is kept.
Set your profit goals and ensure everyone is aware of them and stays true to the fundamentals.