26 September 2013 category: business administration & finance
There is a clear link between business efficiency and the level of profit.
The majority of businesses strive valiantly to make progress but very few reach anywhere near their full potential. If your organisation is not firing on all cylinders you will win less business and be less efficient. Therefore profits will be much lower than they should be.
After 2 years of recession, a large number of small businesses identified obstacles to success:
They also set their goals as follows:
Whilst a poor economy undoubtedly makes business more difficult, there are literally hundreds of small improvements that any business can take to mitigate the effects of a poor economy and boost their business.
A tiny proportion of businesses do better in a recession because they understand this simple fact and take action whilst their competitors try and carry on as usual and blame the economic environment.
It does not take a vast amount of effort or time to change a business for the better. Neither does it have to be done all at once.
The profit model – how to calculate what your profit could be
The good news about improving profit is that there are only two things you can do; increase income or decrease costs. When these two things are done together it has the potential to increase profit by very large amounts.
To illustrate this take a look at the model below:
|Net Profit||10,000||10% of turnover|
Now look at the impact if you increase income by only 2.5% and also make a 2.5% reduction in costs:
|Net Profit||14,750||14.39% of turnover|
The revised profit figure of 14,750 represents a 47.5% increase in profits. It is not unrealistic for the majority of businesses to be able to adjust things to increase their sales by 2.5% or reduce the cost by a similar amount.
However, if you think that this is too ambitious, you should bear in mind that adjustments to sales and costs of just 1% would result in an increase in profit of 19%, which the majority of businesses would consider to be a very significant improvement.
Every business is capable of making changes that will increase their business anywhere between 10% - 50% in six months, just by making a series of relatively small changes in the right order. Change management can lead to the transformation of a business, particularly where profit is concerned.