As spring is officially here it is the perfect time to make real change. Organisations assessing their net profit position regularly is critical. As part of a Business Health Check, adjusting a few key areas can make a massive difference in the profit position of any company.
The first step of any good health check must be securing your net profitability. The first step is to increase collection of your receivables:
- Create an Accounts Receivables aging report
- Know your ART Ratio; Net Annual Credit Sales ÷ ((Beginning Accounts Receivable + Ending Accounts Receivable) / 2)
- Be proactive; Don’t wait until they are late
- Move swiftly on past due accounts; Send reminders and notices on time
- Consider offering a discount for early payments
- Consider offering a payment plan; break up obligations into manageable amounts
- Work with your banker to get cash management options
- Make it easy for your vendors and suppliers to pay; Offer multiple ways to pay
After you have maximized the cash coming into your business, reducing cost of good sold will help improve profitability as well. Some areas to reduce COGS for your business include the following.
- Consider buying in bulk
- Start bargain hunting
- Substitute lower cost materials if possible
- Leverage suppliers
- Negotiate vigorously
- Reduce waste and rework
- Automate whenever possible
- Move manufacturing if necessary
Finally reducing direct costs will also lead to higher profitability. Here are some ways you can pursue.
- Reduce labor expenses
- Upgrade or retire equipment
- Make materials changes in production
- Scrutinize your inventory management processes
- Streamline all logistics
- Improve supply chain relationships
Once your organisation is in a more secure net profit position you and your coach move to the next step of the business health check, business growth.
Moving towards improved profitability will give you confidence that the changes you are making will allow you transform your organization into an enterprise that works for you. Remember it’s a new year filled with new possibilities. Reach for them all.
