How do I improve my bottom line is a frequent question that I am asked and one that every business owner loses sleep over. When I am asked this question I purposely avoid answering it right away until I ask the business owner how they would do it.
The typical responses are, cut payroll expenses, benefits, supplies or in other words, “the low hanging fruit.”
Then I will answer the question with, “wrong answer.” Before you can begin to improve your bottom line performance, you should begin by reviewing your business plan/strategy which should be an all-inclusive plan. By all inclusive, I am referring to: marketing, financial, competitive analysis, and forecasting. After you have performed this analysis, you can begin to focus on your profit and loss statement and your bottom line.
The common mistake that most business owners make is to make a quick reactive decision. The key to this process is recognizing that there is a problem early enough that you can develop and implement a strategy to accomplish your goal. If you wait until it is too late, then cutting payroll, etc. may be your only alternative. That may solve the immediate problem but it will create a long term problem as well.
Remember, that you are in business for the long term and making reactive decisions could and will shorten the life of your business. With that thought in mind, by strategically cutting expenses, you can manage your way out of the problem. Think of yourself as a surgeon, if you are removing a gall bladder, there is no need to remove that plus additional organs that are healthy.
The first area to begin your analysis is your costing or bidding program. In some cases, you can pick up a few percentage points because your costs are not current or there is an imbedded error in the program. Once you have reviewed the job costing function, you can now start honing in on the operating and/or manufacturing expense sections of your profit and loss statement.
Start by reviewing the percentage of sales column. If any of the line items have increased when compared to a year or two ago, that is a starting point to begin your analysis. If that is not the case, then you will need to start a line by line dollar analysis. This may entail looking at the detail behind each line item. If that is the case, the process will be a tedious and long exercise, but well worth the effort.
Once you have performed the above analysis, you will have solid information in which to begin mapping out your strategy for improving your bottom line By using a sound and systematic approach, you are diagnosing the problem(s) before performing financial surgery. Additionally, you have used sound business analysis and not a reactive approach which in most cases will create a long term problem. By creating a long term problem, you may be putting your business at risk of failure.
Please call us at 330-620-2761 for more information on improving your bottom line.