"I
Wanna Hold Your Hand"
Is your business
achieving its maximum profit potential? Do you know what
the maximum profit potential is and how to measure it?
If your answer
to either of these questions is yes you are one of the lucky
ones and in the minority in commercial life.
How can you identify
the true profit potential within your business and implement
a clear strategy for achieving this? If you don't know the
answer to this question then why not consider engaging the
services of a business coach or mentor? Such a person will
have a wide range of experience working with other businesses
and offer both impartial advice and invaluable business
support.
A business coach
assists you in developing a profit improvement strategy
and undertaking a review of your business. This will help
you identify areas where improvements can be made both now
and in the medium term, thereby generating increased profits.
Many business
owners have to deal with day to day matters simply to keep
the business going and do not have the time to carry out
an in depth review of the profitability of each department,
product or service within the business. Running a business
can be a lonely affair as you find yourself having to make
all kinds of decisions on your own. Even a board of two
or three is not always helpful if there is no common agenda.
If you have no-one to talk to or bounce ideas off, how can
you be sure you are making the correct decisions? A business
coach acts as a sounding board and can facilitate discussion
so you can be happy that the decisions you make are correct.
Business coaching
is a recent development within the United Kingdom and if
you wish to unleash the full profit potential within your
business perhaps you owe it to yourself and your company
to engage the services of a suitably qualified person. After
all, you only have one life so you need to make best use
of all resources sooner rather than later!
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How
Well Do You Know Your Business?
In order for any
business to be successful, an effective system which enables
you to measure the performance of each key business area
is essential. The management systems must not simply be
used to produce monthly management accounts, but serve as
a cost-effective business tool to identify those areas of
the business which are profitable and, more importantly,
those which are incurring losses.
In order to do
this effectively each product or service which your business
sells should be treated as if it were a separate entity.
This will entail reviewing and amending the chart of accounts
so that detailed code lists are created for each business
sector. If the existing accounting system is inadequate
for this purpose upgrading is necessary. The extra costs
will be worthwhile because better information will be produced
which, in turn, will generate better decisions and greater
business comfort.
A business can
be split into sectors such that each sector is examined
in detail. The sectors may be divided according to geographical
location, product, service, or whatever unit is appropriate.
Direct costs and
overheads are allocated to each sector and the advice of
your accountant will prove crucial as all costs must be
allocated as accurately as possible. The key performance
indicators such as gross profit percentage, stock holding
ratio etc. for each sector are measured and compared. This
will enable you to identify those areas which are underperforming
and develop a strategy for profit improvement.
Such information
will lead to decision making which will ensure the future
success of your business.
Knowledge is power.
Maintaining
Your Margins
It is all too
easy for management to take their eye off the ball when
business is experiencing an upturn and enjoying increased
sales. Such increased sales will contribute towards an overall
increase in net profit, however such increases may hide
a fall in the gross profit percentage which could go unnoticed.
Even if the decline in gross profit is noticed the increase
in net profit may mean that the opportunity is lost to pass
increased production costs to the customer.
Consider a business
whose turnover has increased from £2,000,000 to £3,000,000
within a twelve month period and net profit has increased
from £200,000 to £250,000. Sounds great.
Management may
congratulate themselves for achieving an increase of 25%
in net profit but fail to realise that this increase is
hiding a reduction in gross margin. The business could find
it difficult to engineer an increase at a future date when
sales are in decline. A business, given such circumstances,
may then find itself in financial difficulty and unable
to increase prices in order to arrive at the gross margin
levels achieved in the past.
The lesson here
is simply that it is imperative that gross margins are regularly
monitored and any reduction needs to be investigated thoroughly
so that remedial action can be taken.
Systemisation
- The Key to Business Success
Successful businesses
identify the key systems within their organisations and
establish written procedures covering each of these areas.
Such systems could
include:
-
Generating
sales inquiries;
-
Monitoring
the number of sales inquiries;
-
Monitoring
the level of inquiries converted into a sale;
-
Measuring employee
performance;
-
Measuring employee
development
-
Production
of management information including, but not limited
to, management accounts;
-
Production
of goods;
-
Stock control,
e.g. buying policies, issues to production, re-ordering
levels etc.
-
Accounting
systems.
The foregoing
is by no means exhaustive and many of these areas are likely
to be dependent upon the owners' involvement. By designing
systems and procedures for each of these key areas you,
the business owner, are making a statement specifying "how
things are done" within your organisation.
The duties of
each person will be clearly defined which will ensure more
effective delegation.
Business owners
and senior management are free to spend their time more
effectively by working on the
business as opposed to in the
business, thereby concentrating on where the future of the
business lies. The business deserves to reach its full potential
and reap the rewards of future success.
Interested?
Call Us Now
For further information
or to arrange a free consultation contact Bill Griffin on
telephone number
01224 625554.
We can also be contacted by e-mail
at griffinb@mestonreid.com
or by fax on 01224 626089, or visit our website at
www.mestonreid.com
to complete our interactive questionnaire.
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