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Profits and Business Success - 5 Profit Traps to Watch Out For
The old saying 'You have to spend money to make money' can be a dangerous one. Every business has it's costs, but not every business owner takes the time to distinguish between what is an essential expense, and what is a 'nice to have' expense.
And on top of needless expenses, businesses can also lose potential profits through poor management processes and techniques. So let's have a look at 5 of the main culprits which contribute to lost profits and reduced success:
Overheads
Limit your overheads to 10% of your sales. If your overheads are significantly more than 10%, some options may include:
reducing office size
removing unnecessary travel - try phone or video conferencing
stop trying to impress with an expensive fitout
overstaffed - look at employee numbers and positions
consider what you spend on office supplies - these are often 'nice to haves'.
High inventory levels - insufficient purchasing controls
Advertising costs - what are you spending and what return are you getting?
Employee and Management Issues
Happy employees work more effectively and productively. If your employees are unhappy then their performance is impacting on the potential profits of the business. What to look out for:
staff performance - keeping unproductive employees
nepotism - hiring family and paying them too much
unskilled employees - training not provided, no opportunities
poor morale - salaries, working conditions, benefits
Processes and Systems
Failure to update processes with technology can leave you out in the cold with your customers and suppliers. Older technology becomes obsolete and is no longer supported by the supplier. Do you have:
old or no technology - processes take longer and are prone to errors
up to date communications - email, web enquiries, voice mail, email you can check wile away from your office
the right management information - are you collecting and useful data
Cash Flow
Cash is king. More businesses fail due to cash flow problems than anything else. These systems must be failsafe and monitored on an ongoing basis:
acounts receivable - collections must be on time
payment terms - don't create a situation where you provide the service now and customers pay later
credit losses - from poor credit approval processes
pricing - not charging enough for what you do/sell
Not enough Planning
Lack of an articulated plan can lead to poor (and costly) decisions:
long and short term goals not articulated - business lacks direction
employees not engaged - not involved, don't contribute, no ideas
decisions are ad-hoc, and not taken with the bigegr picture in mind
How does your business fare against some of these profit drainers? Are you spending money needlessly, or on items that aren't adding value to your business? There is always room for improvement when it comes to profit: spend carefully, save easily, invest wisely.
Megan Tough - published writer, coach, facilitator and speaker - works with people to create outstandingly satisfying and truly successful professional lives. Make more money - have more fun! To learn more and to sign up for more FREE tips and articles like these, visit http://www.megantough.com
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