You don’t need to be an accountant to realise that profitability is key to business success, but it’s worth re-iterating specifically why this is the case. Profits deliver cash in a sustainable way (which is the only way), profits create investment opportunities for growth, profits create capital value in a business, profits provide lifestyle improvements for the owners and ultimately, profits buy choice!
But more fundamental than any of the above, are two things it’s key to remember; profit helps deliver, over time, an entrepreneurial owner’s most important things and for many business owners, profit is the ULTIMATE measure of success.
We could argue that it should be long term value, but we don’t do ‘shoulds’ and try telling that to your clients!
Timing of profitability during a business life cycle and ultimately strategy, needs to drive profit and investment decisions.
It’s not as obvious is it, as to what is a profit, because profits before investment are very different to the black and white of the ‘bottom line’?
As advisors, our role is to make clients aware of the key aspects of their risk and reward dynamics and challenge what’s possible from a fresh perspective.
I don’t think I have ever undertaken a profit improvement review without the client effectively, or often literally saying, “We are already doing all we can, I don’t think you will find anything.”
The reason for this negative initial stance is no doubt because they spend every waking minute of their working life TRYING to make money and doing everything they humanly can.
It’s tough when you are at the coal face, to actually see the light on change and our job with profit improvement planning is to lead them to the surface, take a good look around, challenge what’s possible and provide new and fresh perspectives and opportunities.
When it comes to profit improvement, the RIGHT PEOPLE are the owners, as they know their business inside out, they just need the RIGHT QUESTIONS asked of them.
Essentially, we are helping move them from a fixed mindset to a growth mindset and challenging what’s possible.
Typically, the best profit improvement planning, highlights positive changes in top line revenues, margins and productivity, not just cost management.
For every opportunity discovered, there are typically, but not always, investment implications and the decision usually comes down to risk and reward and likelihood of success and what’s the worst that could happen and how can any risks be mitigated?
Breaking opportunities down into prioritised lists, enables incremental projects, rather than one big bang project.
The key to profit improvement reviews is to take a fresh and challenging look at what’s possible, in a step by step way