If you're trying to improve company performance, it is vital to ensure that any growth achieved is healthy. Aim to boost your profits while not increasing or reducing the resources used to generate them. Here are 10 top tips on how to secure healthy growth...
1. Get the price right Small firms often fix prices wrongly at first, often because of a misplaced belief that new and small firms can undercut established competitors. It is often more profitable for a new company to sell fewer items at a higher price while product offerings are sorted out.
2. Reduce costs Costs are often allocated wrongly and the opportunity for cutting them is almost always greater than you think. Even a small reduction can have a large effect on profits.
3. Retain your customers Acquiring customers is expensive, but once you have them on board they cost less to keep, spend more money with you, and are less sensitive about pricing than new customers. Keeping them will do more than almost any other strategy to lower marketing costs and so grow profit margins.
4. Improve buying By buying items in bulk you will secure better prices and improved terms of trade.
5. Focus on the right products To cut costs change your mix of products and/or services. Analyse costs so that energies are focused on those which have the highest profit margins.
6. Squeeze working capital There are many ways to make better use of working capital. For example, send out statements promptly to chase late payers and always follow up with a phone call. Find out if it makes sense to pay bills quickly to take advantage of early-settlement discounts.
7. Manage the inventory Work out the most cost-effective quantities for orders, while ensuring the production pipeline works efficiently and demand is met. Always keep accurate stock records and monitor slow-moving items. Make prudent sales forecasts so you can match stock and work according to likely demand.
8. Reduce the tax take By checking that you have charged all allowable business expenses against your profit, for example. You can also invest in new equipment. Always make sure you keep within the law and take professional advice.
9. Know your industry A rich source of opportunities to improve performance comes from finding ways to work smarter rather than harder. Keep abreast of latest developments in your field: read widely and attend industry events.
10. Understand the competition See if they are doing much better than you and find out why. Look at catalogues, leaflets, price lists and examine websites. Secure their accounts from Companies House and compare performance with yours.
Colin Barrow is author of Practical Financial Management (Kogan Page, £14.99)
