Oh really, show me how? I think once you focus on the Sales, Profits will take care on its own and will improve only. - asked an entrepreneur CEO
If that was the case, why are most growth firms still not happy seeing their financials? There’s a lot between top line & bottom line. Let me share about 4 key avenues if kept in control that will drive your profitability:
1. Cost of Production/Sales - If you are a manufacturing company ensure the cost of production is in check, if you are trading company then Purchases and if you are a Service company then People cost, keep these costs under control. First step is to ensure you have the best person, a hard negotiator and a person who has an acute sense of numbers on this position. Don’t do cost cutting on getting the right Production Head/ Purchase Head/Ops Head, any cost cutting here would only mean chopping your profits…lets be wise :) Draw up a few key KPIs for Operations and give them target and next you keep reviewing every month rigorously. Remember what is measured can be improved.
2. Working Capital - is the number 1 weakness of most organizations, it is like a fist holding the sand; even before you realize the profits will slide from the gap. Unless Receivables Management, Inventory Control/Bench Cost & Payables are managed well you will keep struggling with cash flow. Delayed receivables, piling inventory or bench will not just take away your profits but will also take a huge toll of your time and at times your sleep as well. Ensure you have a strong finance player in your core team who can bring financial discipline when it comes to cash else you will keep struggling for life without the required oxygen.
3. Operating Cost - Budgeting, planning & decision making is most crucial when it comes to Operating Cost. Never approve any expenditure or authorize any one to approve expenditure who does not have a clue about budgets and impact of the expenditure on P&L. Most Entrepreneur driven organization or even mid-size organizations run without any plans & budgets that’s the reason you find decision making very difficult, since you will keep thinking at instance of every spend. Planning and Budgeting will relieve you from complication of decision making and delegation also becomes easier. So make sure there’s budget for every planned expenditure and you need decisions for only unplanned spends, ensure you don’t mix-up.
4. Financial Cost - There are so many funding avenues and loan products, is your finance team capable to get you the best product at lowest cost? With demonetization all the banks are flushed with funds and interest rates have started going down … has your finance team started negotiating with the bankers? Many a times, Supplier is willing to give extra discount for making earlier payments, is your finance on the top of cash flow management to take such advantages? Look at every angle and strive constantly to challenge your finance cost and am sure you will find lot of creative ways to reduce your finance cost.
If profits are on your radar, we are just a call away.