This years business objective is to increase profitability! That's the easy part, now for the hard part - how to do it.
Chief Financial Officers are instrumental in maximising profits for large corporations. Many of these same principles apply equally to smaller businesses.
This article outlines a number of steps that can be taken to improve your profitability.
1. Be Strategic. Every industry and every business is different. To improve profits it is important to understand your business, which parts of your business are in good shape and what other parts need assistance. Significantly, it is important to ensure you are thinking about your business over the next three years or more. Some of the strategies may require investment and understanding the benefits for investing in the strategy will be critical.
In its simplest form your business strategy should look at your: customers and prospects, internal business processes, learning growth and innovation, financial performance and staff. For each of these it is important to understand what are the critical success factors, measures, targets and who is accountable in the organisation for driving through with the initiatives. The core of this information will form your Business or Strategic Plan.
Importantly, the smaller the business the fewer the strategies that should be tackled. It is much better to achieve a smaller number of strategies on time than have a larger number constantly in progress.
2. Actively Manage Risk. Once you have started generating increased profits through the implementation of your strategic initiatives, the last thing you want is to lose it all by being hit by something out of left-field. Look at the business risks that might affect your business and establish mitigation strategies.
For example:
An analysis of your business identifies that you have a substantial client concentration risk where two clients combined account for more than 25% of the revenues. The last thing you want is for one or both of these clients to terminate their agreement with you. Whilst your account management team will no doubt work hard to keep them, the mitigation strategy is to increase new clients and therefore new client sales initiatives. To do this you might engage with a marketing lead generation organisation to generate a flow of leads to sales. In addition to mitigating the risk you increase the utilisation of the sales team and in turn reducing the average cost to sell leading to a further increase in profitability.
3. Forecast every month. If it is not being measured it is not being managed. With all this activity around business as usual activities and strategic initiatives it is critically important to accurately perform forecast of the numbers across the business. A CFO will have captured all the key drivers of the business and modelled them into a 3-way forecast model to take into account all the activities happening in the Profit and Loss, Balance Sheet and significantly the Cash Flow Forecast. Together these three elements capture all components to ensure the business continues to improve and there is at all times sufficient cash in the business.
If you want to evolve your business to the next level, an exceptional part-time CFO can help you get there.
CFO Evolve.
CFO Evolve provide exceptional part-time CFOs that can review and implement the strategies most suited to increase profitability in your business.
Contact us today if you would like a confidential conversation.
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