Every business would like to increase its revenues. But this makes sense only if it leads to higher profits, according to BDC Business Consultant Jorge Henao, who recommends five key steps to make more money.
1) Assess your profitability
Analyze your gross profit margin and operating margin periodically and compare them to those of the best companies in your industry (or related ones). This helps you identify opportunities for improvement.
2) Analyze the components
Review the profitability of individual products or services, business lines, select jobs, geographic locations, clients and other elements. This lets you zero in on winners and losers.
3) Examine your options
Consider different ways to profit margin, for example, by reducing costs, increasing prices or eliminating unprofitable products and clients. Do a thorough assessment for each alternative including creating scenarios for possible outcomes.
4) Make a plan
Select the best options for improving your business’s profitability and devise a work plan for implementing your decisions.
5) Set targets and follow-up
Based on your chosen options, set a schedule with ambitious, yet realistic, targets. Then conduct a rigorous quarterly follow-up to make sure the plan is on track or to implement corrective actions.
Henao also suggests entrepreneurs ensure they are properly costing for all product or service inputs. If not, this can lead to wrong conclusions and poor decisions. As well, smaller firms need a clear understanding of why clients buy from them. This will help them determine the best options for increasing profits.
Adapted from the Business Development Bank of Canada (BDC) In Business newsletter. For more information, visit www.bdc.ca