Business Health Check: Step 1 Improving Net Profits
Now that winter has arrived, it is the ideal time to make significant changes. It is vital for businesses to examine their net profit position on a frequent basis. Adjusting a few key areas as part of a Business Health Check can make a huge difference in a company’s profit situation.
Securing your net profitability should be the first step in any excellent health check. The first step is to improve your receivables collection:
- Make an ageing report for your accounts receivables.
- Understand the ART Ratio; Net Annual Credit Sales ((Accounts Receivable to Begin + Accounts Receivable to End) / 2)
- Be proactive rather than reactive; don’t wait until they’re late.
- Resolve past-due accounts quickly; send reminders and notices on schedule.
- Consider giving a discount for paying on time.
- Offer a payment plan; divide your duties into small chunks.
- Discuss cash management solutions with your banker.
- Make it as simple as possible for your vendors and suppliers to pay you; Provide a variety of payment options
After you’ve maximised the cash flow into your organisation, lowering the cost of goods sold can help you boost profits. The following are some areas where your company’s COGS can be reduced.
- Consider buying in bulk;
- Begin looking for bargains;
- If possible, substitute lower-cost materials;
- 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
When your company’s net profit position is more secure, you and your coach can move on to the next part of the business health check: business growth.
Moving in the direction of increased profitability will offer you the assurance that the changes you’re making will allow you to transform your company into one that works for you. It’s important to remember that this is a new year with new opportunities. Pursue them all.