The old saying “You have to spend money to make money” can be a dangerous one. Every business has it’s costs, but not every business owner takes the time to distinguish between essential expenses and “nice to have” expenses. On top of needless expenses, businesses can also suffer from losing potential profits through poor management processes and techniques.  In this article I examine some of the areas to consider when looking to improve your profit position.

Overheads

Limit your overheads to 10% of sales. If your overheads are significantly more than 10%, some options may include:

• reducing  office size
• removing unnecessary travel – try phone or video conferencing
• stop trying to impress with an expensive fitout
• overstaffed – look at employee numbers and positions
• link the amount spent on overheads to a % of sales
• High inventory levels – insufficient purchasing controls
• Advertising costs – can’t track return, incorrect message/media

Employee and Management Issues

Happy employees work more effectively and productively. If your employees are unhappy then their performance is impacting on the potential profits of the business.

• staff performance – keeping unproductive employees
• nepotism – hiring family and paying them too much
• unskilled employees – training not provided, no opportunities
• poor morale – salaries, working conditions, benefits

Processes and Systems

Failure to update processes with technology can leave you out in the cold with your customers and suppliers. Older technology becomes obsolete and is no longer supported by the supplier

• old or no technology – processes take longer
• communication medium – no email capability
• missing information – not collecting necessary business data

Cash Flow

Cash is king. More businesses fail due to cash flow problems than anything else.

• acounts receivable – collections take too long
• payment terms – you provide the service now, customers pay later
• credit losses – poor credit approval processes
• pricing – not charging enough for what you do/sell

Not enough Planning

Lack of an articulated plan can lead to poor (and costly) decisions

• long and short term goals not articulated – business lacks direction
• employees not engaged – not involved, don’t contribute, no ideas
• no cash flow projections

How does your business fare against some of these profit drainers? Are you spending money needlessly, or on items that aren’t adding value to your business? There is always room for improvement when it comes to profit: spend carefully, save easily, invest wisely.