Are problems beginning to surface in your business? Have profits been dwindling? Are customers complaining with greater frequency? Are competitors encroaching on your market share? These are warning signs that you’re headed in the wrong direction – and you don’t want to ignore them until it’s too late. Here are suggestions for turning things around.
- Focus on the money-makers.
- Perhaps your business has developed products your customers aren’t willing to buy. If so, it may make sense to redirect your company’s available resources. Does that mean you should never create new product lines or expand into new markets? No. But new products must eventually improve the bottom line. If they don’t make money within a reasonable time, refocus.
- Reestablish your brand.
- Identify what you do best; then tell everyone. Your goal is to educate customers, vendors, and employees on the reasons why your product or service is better than the competition. Be specific. Of course, to remain credible you must back up your claims, so be realistic as well. Win trust by following through.
- Track results.
- Once you’re refocused on the money-making segments of your business, keep a close eye on the numbers. Know whether customer complaints are down, cash flow is improving, back orders are declining, and market share is holding steady or increasing. If profits aren’t showing an upward trend, take another look – then adjust and remeasure.
For help getting your business back on track, give us a call (757) 926-4109, it’s what we do.
Does your business have any of the following problems beginning to surface – dwindling profits, complaining customers, encroaching competitors?
Heed the warning signs. Problems such as the ones above are warning signs that you should not ignore. Decreases in sales could be a result of any or all of the following causes – customer retention problems, decreases in product quality or an unmotivated sales force. Turning around a struggling business requires humility and a willingness to make tough choices. Uncovering root causes of your business’s problems and admitting your mistakes won’t be easy but you must face the realities to avoid a sure path to failure.
If your company is starting to struggle, consider these three tips to help you get it back on track:
- Focus on the money-makers – Has your business focused on products and services that customers are no longer willing to buy? It makes sense to redirect your company’s available resources toward your most profitable offerings. Do you have a system for determining your margins on your products or services? Is there an accurate way for you to track your expenses and assign them to costs of goods and services sold? These are the factors which determine your profit margin (revenue – cost of sales) and will help you weed out the most unprofitable items you offer. You may be surprised to find that some of your products are loss leaders that actually cost you money instead of making you money.
- Establish your brand identity – This step starts with identifying what you do best and then telling your target market all about it. Your main goal must be to educate not only your customers, but your vendors and your employees on the reasons why your products and services are better than your competition. Be realistic and follow through on any claims you make about your offerings and core competencies or you will lose credibility in the market place. The best way to re-establish your brand identity is to be specific in your value proposition by plainly stating the benefits your customers receive when they buy from you.
- Track your results – This is a biggie, probably the biggest of the three tips presented in this post. Keeping a close eye on your numbers is paramount to managing your business and maintaining or growing your market share. You must measure what matters. This means tracking both quantitative (numeric) and qualitative (non-financial) data and once gathered, analyzing the results. Examples of some things to track include # of customer complaints, cash flow status, trends of items on back order, and profit trends.
Customizing these three tips to suit your particular business will allow you to think more strategically and help you to identify root causes of problems before it’s too late to take corrective measures. If you’d like help getting your business back on track, give us a call, it’s what we do. Our business coaching is an intensive one-on-one program that can help you identify issues you can work on to reach your goals.
Analyze your break-even point (B/E Point) to make better business choices. Sounds simple enough right? Read on for a little basic guidance on this fundamental business tool.
Break-even analyses are an important and useful tool in business financial management. You can use break-even analysis to help evaluate:
- Starting a new business,
- Expanding current operations,
- Developing a new product line or service offering,
- Contemplating an acquisition,
- Downsizing operations, or
- Approaching banks and other potential lenders,
When we talk about “break-even” we simply mean the point at which costs equal income – no profit, no loss. In other words, it’s a determination of how much income you need to cover all of your costs.
Why calculate break-even?
- The break-even point an excellent starting point for finding out where the business is and where it can go.
- It’s the first step in planning future growth.
- It shows how much sales volume is needed to cover fixed and variable expenses so it’s an excellent budget tool.
- Once a company has reached break-even, all gross profit beyond that point goes directly to improving the bottom line, growing and prospering.
How to calculate a break-even point:
Break-even is relatively easy to understand and use. First, review the annual financial statement in order to figure out fixed and variable expenses. Variable expenses are the cost of goods or services sold and other costs of sales, such as direct labor and sales commissions. They are called variable expenses because the quantity of products (produced/ordered/sold or – in the case of services – hours worked) causes the expenses to either decrease or increase with volume. You must know your unit selling price and the variable costs associated with each unit sold (production or acquisition costs) to be able to compute the gross profit percentage. You will also need to know your fixed costs. Fixed costs are those expenses that are not affected by production such as rents, insurance, telecommunications, and fixed salaries. Once you know all the variables (unit selling price, variable and fixed costs) the rest is just plain-old arithmetic. You will divide your fixed costs by your gross profit percentage to arrive at the break-even point. For example, if you have fixed costs of $10,000 and your gross profit percentage is 25%, your breakeven point is sales of $40,000 ($10,000 ÷ 25% = $40,000). You would have to sell $40,000 worth of products or services in order to cover all of your costs and not be in the red or black.
There are, of course, some costs that are, or seem to be, part fixed and part variable. Management will have to use good business judgment to split these items into reasonable proportions.
There are certain limitations for the use of break-even analysis. It ignores the importance of cash flow and makes the assumption that fixed and variable expenses will stay within the parameters used to calculate the break-even. Again, sound business assessment will overcome these shortcomings.
Call us – we would be happy to assist you with calculating your business’s break-even point to help you with budgeting and evaluating your profit structure.