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
