IQ-Magazine-Issue-12

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IQ business planning INCREASING YOUR PROFITS WITHOUT JUST CUTTING COSTS James Pinchbeck of Streets Chartered Accountants offers advice on increasing the bottom line You would expect an accountant to say ‘Keep your costs down’, whether these are direct or overhead expenses. You’re probably less likely to find accountants considering some of the other key areas that can help to improve your profitability. Focus on core business Identify your key areas of profitability and those with an upward trend. All too often, enthusiasm for new products and services can distract from profitable core activity. Research shows that more successful businesses focus on core activities. Cherry pick, rather than mass market new customers When looking for more customers, focus on characteristics that are similar to your more profitable, existing customers. If you’re looking for new customers, consider splitting this role between those in your organisation who are good at hunting for new customers and those who are good at looking after existing ones. Know your customer and ensure your customers know you Many businesses focus purely on new customer generation. However, it is important to maintain a balance between generating new ones and servicing existing customers. Selling to existing customers costs six times less than selling to a new customer. It’s important that staff are fully aware of your products and the cross-selling opportunities. It’s equally important to ensure that your customers are fully au fait with your products and services. How many times have you heard the comment ‘I didn’t know you did that’ and, as a result, a customer has bought from a competitor? Ensure you keep up to date with customer expectations; most business is lost through indifference. Spend time on the business, not just doing the business If you’re looking to increase capacity or improve efficiency, spend time looking at the way you do business. It can be surprising how often it’s possible to achieve increased sales and profitability without taking on more people or investing in additional resources. Invest in your people Staffing is often the biggest cost and the most significant resource. Consider developing existing staff and rewarding them with a bonus scheme, training or better working conditions. This approach can often help to reduce employment costs through improved retention and reduced absenteeism. issue 12 | page 16
Outsource For non-core activities or where in-house skills are lacking, it may be more appropriate to outsource functions. There is a growing trend for companies to outsource specialist services where there is a shortage of technical knowhow, or where the cost of carrying out the work inhouse would be prohibitive. Persistence It isn’t rocket science, but in most scenarios the failure to attain one’s goals is simply the result of a failure to pursue them. All too often, good ideas and intentions are lost when we revert back to old ways and bad habits. There is much more to profit improvement than just cutting costs and increasing prices. Whilst you might start with gusto on a programme for increased profit, it’s surprising how, by giving a little attention to some of the points above, a significant difference can be made to the bottom line of your business. Be a supplier of desire or preference, not just price If you’re able to differentiate your product and service in such a way that your competitors cannot match, or to such an extent that customers specifically seek or request your supply, then you may be able to gain by increasing price, and therefore create a profit margin advantage. However, if the service or product you offer is just like your competitors’, then invariably the buying decision is all too often down to price, with ultimately pressure on profit. Create barriers to competition In addition to differentiating the service or product you offer, the ability to create something that gives you a competitive advantage, especially if you can protect it with a trade mark, patent or intellectual property, certainly can help enhance your margins. IQ business planning Budget for profit and review the way you budget It’s still quite alarming how many businesses don’t produce a forecast or budget unless they have to, say for a bank or other financial lending. The importance of a good budget, along with budgetary techniques where budgets are reviewed and action taken to ensure objectives are achieved, is essential. Probably more important for best results and improved profits is the basis used to produce the budget forecast. Perhaps one of the best methods is zero budgeting, where you build a budget on zero spend up, challenging and justifying all the spend you make. Certainly, this approach brings a fresh perspective and helps to avoid the budget looking the same, give or take, each year. Hopefully, the pointers outlined in this article will help to trigger some new ideas for your business and some fresh thinking. Whether you are mid-year, or looking at budget forecasting or profit improvement generally, a useful adage is, ‘If you carry on doing what you have always done, you will only have what you have always had’. Given the growing sense of growth in the economy, perhaps now is a good time to look at how profitable your business really could be, not least remembering that ‘Profit is sanity and turnover is vanity’. MORE INFORMATION www.streetsweb.co.uk issue 12 | page 17
Page 1 and 2: Issue 12: Feb 15 - Apr 15
Page 3: info@cubiqdesign.co.uk | 01638 6664
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