1. Analyse of balance sheet.
An honest balance sheet review will reveal areas that need immediate remedial action. Are key business ratios correct? An action plan must be created if the vital business ratios are not correct. This will help to address perennial problems like stock and outstanding creditors. If you don’t have programs that demonstrate the business’s health, it is unrealistic to expect business backers to accept your future strategic plans.
2. Margin analysis.
Your accountant should be able to perform margin analysis and explain margin variances. Your thinking should be focused. I have seen loss leaders during difficult economic times that ultimately lower the prices for all your products. Margin is the difference between your net price and the cost of shipping and servicing your product. It is essential to have a good understanding of the current costs of your products and how they are broken down. Your company’s product margins will help you focus your entire management’s attention on your contribution to that margin. You must ensure that there are programs in place to achieve acceptable margins for each product, and then you must be vigilant about protecting those margins.
3. Analysis of product prices.
The downward pressure is always on prices achieved for your products in the marketplace. Compare the product prices achieved by your company and your competitors in the marketplace. You must convince yourself that your products have a competitive price. You must convince yourself that your products are priced in line with the market’s best prices. Then, ensure that your sales team has price maintenance under control.
4. Analysis of salesforce.
Salespeople must sell during difficult economic times. Customers will expect them to clearly explain the benefits of your product to them and to show that they are better than the competition. Stop arguing about price and instead focus on quality and customer service.
5. Control of costs
This is the other side to profitability. Your management team must understand and accept responsibility for cost containment within their budget limits. Budgeting should allow for enough flexibility to accommodate sales deviations. If sales are below budget, the only way to make profits is to cut expenses in a proportion that is greater than the sales. This sounds simple, but managers often fail to recognize the importance of flexibility. Sales team shortfalls can often be blamed on rival departments. The sales team should be supported by management. They need to reduce costs and actively pursue cost reduction opportunities. The most successful business managers today need to be hard-nosed and set clear objectives that not only capture market share but also improve profitability. Businesses that are making marginal profits need to be addressed quickly before the corporate parent decides to close the company or sell it. Smaller businesses need to act before their reserves run out. Positive cash flow and healthy profits are the best things for building business confidence and support.
Summary: Be aware of the warning signs as soon as possible.
You should not delegate all aspects of business analysis to your accounts department. Your management team must accept responsibility for preserving bottom-line profits.
Establish your profit goals and ensure everyone is clear about them.