Category: Cash

July 23, 2015

5 Ways to Increase Profit This Year

5 Ways To Increase Profit This Year

By Robert Fish

Your company is growing, your team is adding clients and your net income is growing in terms of total dollars – but not in terms of net-income percentage. Companies that are growing and really focused on client acquisition usually see negative pressure on net-income percentage – much to the CEO’s frustration.

Get Busy

Here are some things you can do RIGHT NOW to grow revenue AND grow net-income percentage.

1. Look at your client mix. List all of your clients on a spreadsheet, then ask the following questions:

Which clients produce the most revenue? The most gross profit?
Which ones require the most management time? The most staff time?
Which ones have the most growth potential?
Which clients are absolute pleasures to work with? Which ones just drive you and your team nuts?

2. Look at your data objectively and figure out your Top 20% clients. This will help you create your “Top 20% client profile” -– the types of clients that you want more of.

3. Identify the decision makers at the Top 20% clients and begin to create a Buyer Persona. Think about: What are their habits? How do they buy? Where do they look for information? What groups do they belong to? What are their needs and their biggest problems to solve?

4. Focus your sales and marketing efforts on prospects that fit your Top 20% profile, and leverage their typical Buyer Persona into your sales process and messaging.

5. Stop lowering prices to get a deal and stop giving away margin!!! Your targeted group appreciates you and your firm and is willing to pay optimal profit for your products or services. You have already proven it with the spreadsheet you developed. This is also a great time to raise prices.

At the end of the day, without making any additional investment in operations, product delivery, etc., just by getting more focus on WHO you are selling to, you are automatically increasing the value of WHAT you are selling because this group VALUES what you are selling more than others who are willing to buy, but only at a discounted price.

Another net-income percentage benefit is that this targeted group is easier to service. Your core product or service is already exactly what they need. This saves huge amounts of time, but that does not show up easily on any of the P&L statement line items … just net income.

Ask The Question

Get your team together at your next Quarterly Planning session and ask the question:

“How can we get our net-income percentage from X% to Y% by the end of 2015?”

Don’t shoot for the moon. The objective is getting your team aligned around some key priorities and focused on execution. Results drive engagement.

(Image: 401calc ulator.org / Flickr)

May 21, 2015

FUEL UP Your Growth Engine

General Electric’s GE90 class jet engine is powerful enough to power a Boeing 777 airplane in flight for over 5 hours … on just ONE engine. GE is relentless in its engineering efforts to continuously create more powerful, safe, fuel efficient and light engines. But as powerful as this engine is, it cannot produce any thrust without fuel. It won’t even start.

Every company has a growth engine. But, in reality, leaders rarely take the time to inspect and tune it up for maximum efficiency. In a business, fuel is CASH. And the number one way to increase cash is to increase PROFIT.

There are 7 Levers that influence your Profit and Cash Flow, the fuel required to rev up your growth engine to maximum thrust.

Lever #1 – Price

Lever #2 – Volume

Lever #3 – Cost of goods sold (COGS) and direct costs

Lever #4 – Operating expenses

Lever #5 – Accounts receivable

Lever #6 – Inventory or work in progress

Lever #7 – Accounts payable

It’s easier than you think to take actions on these levers and increase your Profit and Cash Flow. The Power of One is a concept that shows how doing something to move those levers either 1% (on levers 1-4) or 1 day (on levers 5-7) in a few critical areas can lead to a significant increase in Profit.

Move The Levers

The Power of One One-Page Tool allows you to calculate the effect on your profit if you can move those levers either 1% or 1 day.

Lever #1 – Price: What’s the value of increasing prices by just 1%?

Lever #2 – Volume: What’s the value of selling just 1% more units at the same price?

Lever #3 – COGS: What’s the value of decreasing raw material and direct labor costs by just 1%?

Lever #4 – Operations: What’s the value of reducing overhead by just 1%?

Lever #5 – Accounts receivable: What’s the value of collecting from debtors just 1 day sooner?

Lever #6 – Inventory: What’s the value of keeping 1 day’s less stock/inventory on hand?

Lever #7 – Accounts payable: What’s the value of paying creditors 1 day slower?

I know what you are thinking. You already know all of this!

But the reality is, most companies don’t take the time to actually measure the impact these small changes can make. You can easily add 3% to your bottom line just by tuning your engine, making small and painless adjustments.

Put the Power of One into action with a simple spreadsheet that you and your team can use to measure the impact of the changes in each Lever. Assign a person to each lever, and create SMART goals and action plans to generate more profit to FUEL UP Your Growth Engine!

(Image: Dale Coleman / Wikimedia Commons)

June 17, 2014

SCALE Up with the Cash Conversion Cycle

I facilitate planning retreats every week and I’m always fascinated by the concept of the CASH CONVERSION CYCLE and how it engages every person in the room. Typically, the concept of cash is left to the business owner and the Controller and/or CFO. Cash is like oxygen for the business. Without it, the business simply dies. So the question is “how can we generate as much cash as possible to fuel growth and reduce the need for outside financing?” There are four parts of the CASH CONVERSION CYCLE and all four need to be analyzed and shortened as much as possible:

1) Sales Cycle

Shortening the sales cycle has an impact on cash! What are the ways the sales team can get to the market faster and less time between steps? How long does it take to bring a new product to the market? What is the R&D process like? How can we speed it up? The sales team is never asked to think about sales in the context of cash conversion. And you’ll be surprised what they come up with when asked. For them it’s really commission conversion cycle and they will become great advocates for the initiatives.

2) Make / Production Cycle

Shortening the make / production cycle has an impact on cash! What are the ways to speed up inventory turns and reduce inventory? How can the sales team get better orders so things get made right the first time? How can operations be organized to increase flow and capacity? How can LEAN techniques be used to eliminate waste of material and time?

3) Delivery Cycle

Shortening the delivery cycle has an impact on cash! We see so many easy to correct mistakes happen at this stage. And until delivery happens billing usually cannot be completed. How long does it take to complete the delivery of the product or service? Was the customer ready? Did they get exactly what they expected? Did the finished product have to be shipped back for re-work due to miscommunication or improper order taking? Did the product work like it was supposed to? Did Quality Control do their job right?

4) Billing Cycle

Shortening the billing cycle has an impact on cash! Most companies think they are stuck in a billing format due to their industry norms. The reality is most clients are willing to pay faster or are willing to change when billing happens. The trick is you have to ask! For example, instead of billing everything at once after the service is completed, consider X% up front and progress billing. If you typically bill monthly, start billing bi-weekly. If you bill bi-weekly, start billing weekly. If you are a service based business and usually bill for work after it was performed, start billing for work before it is performed.

Look for 100 hundred ways to shorten cycle times and never stop looking. Make it a point, each quarter, to find an area the company will focus on and improve. I guarantee when you look at your business through the lens of cash you’ll realize when you make cash improvements you are also making significant process improvements.