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Improving the Profitability of Your Business By Steve Burns, Capital News contributor I received a call from a local business owner a number of months ago that he agreed to let me share with you-as long as he remained anonymous. The business owner has always been very upbeat about his business. Every time we speak he is very positive about the growth in his business and how bright the future looks. "Things are going really well," has been tone of our conversations. We were engaged to do the year end accounting work for his incorporated company. We offered to do both the accounting work and to do a small consulting project-we would meet with him on a monthly or quarterly basis to assess his business performance and determine what changes would be required to meet his goals. However, he chose to only have us do the accounting work. After all he said "consulting is a waste of money." I understand his apprehension about spending money on consulting fees-a concern that my research shows is shared by 75 per cent of the business owners in the Okanagan. Things changed when he received the financial statements. He said: "We did it again! We increased our sales for the third year in a row but our profitability hasn't improved one bit. I am totally frustrated. It just seems that things are out of control. Is this business even worth being in?" Sound familiar? Many entrepreneurs that I speak with are similarly frustrated that their business is not more profitable. While a business is much more than the profit that drops to the bottom line, let's face the facts-if your business is not as profitable as it could then you are suffering hugely. First, profit is the fuel that powers a business. Profit fuels growth, rewards your shareholders and stakeholders and ultimately determines the success or failure of your business. Profit is what gives a business opportunities to capitalize on, choices and options. For instance, lower profitability means that you may not be able to serve your customers with the level of care that you want to. For instance, you may not be able to offer them the product selection that your competitors do or provide them with the level of service or support that you want to as you cannot afford additional employees. Second, your "real" growth has stagnated. I consider real growth to be the growth in your profitability not the growth in your sales. Without real growth in your profitability your ability to expand your business is impaired. What we agreed to do was to analyze his business and develop a customized profit improvement plan that we would help him execute. The profit improvement plan is customized to his business and is very specific. It outlines our overall profit improvement goals, the specific profit improvement opportunities that we have uncovered and identifies specific profit improvement activities that will be undertaken to accomplish our profitability goals. Most importantly, it measures everything that is relevant. The profit improvement system that we have implemented has resulted in a 50per cent increase in profitability since we started. We believe that there are even more profits to be found. Perhaps you are thinking: "Well, I am not like that-I really don't think there is anything more we could do to increase profits. We are doing everything we can, I'm sure." However, you will never know unless you have a closer look. I would say that in over 90 per cent of the cases where we have established a profit improvement system, the owner has been shocked as to where profits are "leaking" out of their business. Profit improvement opportunities are out there if you just know where to look for them. Take the time to really think about your business' profitability. Ask yourself the answer to this question: "Is my business as profitable as it could be?" If not, you need a Profit Improvement Plan. Steve Burns, CA, CMC , CFP, is the president and CEO of Burns Innovation Group Inc. (www.burnsinnovation.com) and Steve Burns Inc. Chartered Accountant (www.steveburns.ca), which provide consulting and accounting services to entrepreneurs. You can reach Steve at 763-4716 |
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