6 Effective Ways to Improve Profitability of Your Company

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The goal of every successful company is to remain profitable and grow. We can all agree that the last couple of years made this job incredibly difficult and according to all indicators, the period of global crisis and hardships is still not behind us.

As a matter of fact, the recent article published by Forbes predicts that 2023 will see negative growth of –0.4% which is considerably worse than this year's already disappointing -0.1.

Still, the knowledge that we are going to experience problems is always the first step in finding functional solutions. Let us take a look then at some of the most effective ways to improve the profitability of your company and make sure it comes out of the incoming turmoil intact.

 

Review the expenses

This is something that goes without saying, but keeping in mind the harsh state of the global economy you should make extra effort to leave no cent you spend unaccounted for. However, in order not to spread your resources too thin, you should focus your monitoring efforts on these key financial areas:

- Profits and losses in set periods of time

- Asset deprecation

- Accounts payables and accounts receivables

- Cash flow statements

- Payroll expenses

- Fixed costs and utilities

Keeping a close eye on these channels will give you a very good idea of where your company leaks money and what improvements should be made to improve its financial sustainability. Of course, this is not a one-time job and financial audits should be performed as frequently as possible.

 

Invest in the areas stimulating growth

In ideal circumstances, your company should try to cover as many bases as possible and constantly try to expand its infrastructure and product portfolio. In order for these things to be possible, however, the business owners need to make deliberate investments that encourage growth like for instance building a sales funnel, increasing customer retention, encouraging repeat business, researching the target audience, and expanding the product catalog with the items that will attract wider demographics. These investments don't produce immediate results but they are critical for long-term financial growth.




Improve inventory and supply chain management

Juggling between extended payment terms, keeping up with new orders, and preserving the integrity of the cash flow is an integral part of running a business. However, all these things find themselves in a very delicate balance and can be easily thrown off the rails. Therefore, you should do your best to make inventory and supply chain management more efficient and set up contingencies for the eventual risks you might encounter. For instance, trade finance loans do a great job of mitigating deadlocks that are so synonymous with international trade without putting a heavy financial burden on your business.

 

Preserve the uninterrupted cash flow

Speaking of cash flow, this vital business area effectively represents the blood pumping through your company’s veins so we can’t stress enough just how important is to keep the revenue financial streams open and uninterrupted. One of the easiest ways to do that is to offer your clients incentives for making early payments or even the option of switching to a subscription-based mode. Other is to explore some of the financial tools like invoice factoring. Finally, you can try pre-selling products and services. All these approaches have proved to be very effective in keeping businesses liquid so feel free to try them out.




Invest in critical departments

In this day and age, a lean and profitable company heavily relies on outsourced services to cover more ground and get much necessary agility. However, the departments and activities absolutely vital for the survival of your company should be always kept in-house.  Essentially, those would be the production, management, and customer service. Since the business world becomes increasingly reliant on digital tech there has recently been much talk about the value of in-house IT teams. Since all these components have a tremendous impact on revenue, they should see an adequate influx of stimulating investments.

 

Encourage good financial habits

When talking about financial habits we think about the things like keeping the track of the finances, reviewing the expenses, laying out unequivocal financial protocols, and keeping up with deadlines. Failing at any of these duties can considerably impede your company’s cash flow and, as a result, its ability to generate revenue. So, take these matters very seriously and establish a clear set of procedures that will keep your employees in line and ensure they are taking good care of the company's finances. In ideal circumstances, these measures should be implemented by some sort of internal control or board.

We hope these few examples gave you a general idea about the strategies you can use to make sure your company develops good financial habits and, over time, gradually increase its profitability. The period ahead of us will, by all means, prove to be quite troubling, and with things as they are any improvement you manage to make, no matter how marginal it may look at first glance will make a big difference in the long run. Do your best then to put your organization on a healthy foundation and weather this upcoming storm with ease and confidence.


Written by Brigitte Evans

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