Profit is seen as the primary objective of any business activity – but is profit what it’s all about?
Simplistically, a business buys or creates a product for a costs and then sells it to a customer at a price that equals; the cost + a (profit) margin = sale price. However many businesses are finding that market forces are making it increasingly more difficult to achieve a reasonable profit at the end of each year.
While there are an infinite number of reasons or issues that can negatively impact the ultimate profit generated by a business over a year, there are a number of factors that are directly related to the profit potential of a business, including:
- Cash flow
- Clarity of purpose
- Well defined client/customer profile
- Effective business systems
- Client value usability
- Accountability
Cash Flow
Cash flow is King!
Most businesses fail due to lack of cash flow, especially small and medium size businesses.
Cash flow problems usually start with non-payment or non-collection of outstanding receivables (money owed to your business by others). In some cases this can be as basic as not invoicing your clients after the work has been completed
Clarity
Clarity of purpose is one of those statements that gets universal agreement – but for many businesses it is difficult to put into action. Clarity of purpose is one of the foundation pillars of a successful business.
Developing a profile of a client or customer who is able to gain the most value from your product (or service) allows your business to refine its delivery systems and support services to enhance the value experienced as a result of purchase. If done well, this process can identify niche markets that can generate strong long term sales and healthy profit margins.
Systems are critical
The heart of any business are the systems used – sales, accounts, service, management, markets, etc.
A system is simply a process that allows actions to delivered repeatedly and generating consistent outcomes. They also need to provide an ability to measure the critical functions of the business.
Systems don’t have to be complex or elaborate – but they do need to be effective and efficient.
Client usability value relates to the ability of the client or customer to use the value potential a product or service provides as part of the sales transaction. A client or customer measures the product (and the business in most cases) based on the benefit or value they can gain from the product or service. If they can’t use the product or don’t use it correctly, the client or customer is unlikely to provide qualified referrals or make repeat purchases.
Understanding client usability is often totally ignored by small and medium sized businesses.
Finally, Accountability
Accountability at all levels – to the client, suppliers, employees and most importantly to the business vision or purpose.
If you are seeking to generate more profit from your business, reflect on the six factors outlined about above. These factors are your business foundation.