I help clients’ businesses become more profitable, using financial and management accounting amongst other things. I use some principles to guide my advice which I think are valid, no matter who you are, or the type of business you are running. In my experience, if you bear these principles in mind, you will be able to avoid some of the cold-sweat-inducing ups and downs of running your own business.
I do not advise brainstorming for your strategy
I think brainstorming is just another way of saying wishful thinking. In my experience, it leads to companies pursuing unattainable goals and unusual ideas which are not in line with their commercial reality.
If your strategy is not clear to you after your data analysis, market research and clients’ information, no brainstorming will help clarify it. If anything, it will muddle the waters and send you in different directions where you have no reality check.
Incremental improvements, not dramatic overhauls
If your business is doing well, it’s always worth thinking about what you could be doing to make it more profitable. It’s tempting to make bold changes, but incremental improvements can bring many benefits. This is particularly valid when your small improvements are with your systems – debt collection, the data you collect and how you collect it, how you monitor productivity, or the percentage of your spending on a project. The ultimate payoffs of system improvements will be long lasting.
Setting out on a major cost-cutting exercise could kill your business. Instead, consider gradually implementing cost control. Making other small changes can help you work out what is driving your profits, and this can snowball into other areas.
Small is beautiful
If you come to me saying that you want to reach £2 million turnover a year, while you are comfortably making a profit at £1 million turnover a year, I will have to ask you why. What is it that you would be able to do at £2 million a year that you are not able to do at £1 million?
If your business does not tend to grow through naturally increasing its client base because they are attracted to your product or service, you are pushing for growth to satisfy your ego. Accelerated growth diminishes profits and increases risks until the business settles down again at a different size. If it does. I have seen many businesses bouncing back to the starting point as the structure has not been able to sustain the growth.
By no means, go for it, but don’t expect that smooth landing on the other side is a given.
Take the path of least resistance
In my experience, entrepreneurs like to focus on new areas of development that have not worked out. They like the challenge of launching new and exciting products and services or venturing into a new market. As a result, they ignore the things that are going well – their traditional product or market.
If you call me in because you want to hear a magic solution – a new widget or recipe or service – I will tell you to first look after your golden oldies. Maintain your focus on the areas which are going well and see how you can enhance them. Remember that your target market comes to you for a reason. If they keep buying the same thing from you – great. If they specifically ask for something new, build it gradually and test it to death. Clients won’t reject something new necessarily, but they will reject something new if they don’t need or want it.
What do you think? Did any of the above ring a bell with you? If you’d like to talk about anything you’ve read here, or to ask me any questions, please feel free to email us on info@profitableinsights.co.uk.