Focus on profits, not sales

On the Money

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Most companies are challenged to increase year-over-year profitability. Typically, the response is a singular emphasis on growing revenues. However, superior management teams do not wait for a recession or a crisis to address efficiency, internal costs and cash flow. By maintaining a consistent focus on maximizing profitability, the company achieves its full potential and reduces its vulnerability to economic cycles.

The following may be items to consider:

  • Analyze opportunities based upon gross profit contribution and/or gross profit percentage. Assure that time and resources are dedicated accordingly.
  • Consider whether there is work completed in-house that could be contracted out at a lower cost without affecting quality or service, or vice versa.
  • Bring the best practices of lean to the plant, the logistics and the office.
  • Make sure to have timely collection of receivables, which provides additional cash flow and aids in identification of collection problems.
  • Without affecting service to customers, adjust inventory levels to meet demand.
  • Be strategic with accounts payable. Terms for payment should be a component of the sales process and price negotiation.
  • Review all contracts of outside services and purchases for renegotiation, particularly if linked to commodities that have experienced recent deflation.
  • Analyze unused or seldom utilized equipment for possible sale. Analyze utilization of floor space to reduce expenses.
  • Assess current technology in order to increase efficiency. Assess talent within the organization. Prior to recruiting for an open position, consider whether two jobs can be merged or an open position can be filled with a qualified part-time employee.
  • Seek input from all employees on ways to reduce costs. If cultures and strategies align, consider acquiring or merging with a customer, supplier or competitor.

Superior leaders surround themselves with superior management teams and superior outside professionals. Assure that all internal and external resources are engaged and committed to maximizing profitability. Consistently maintaining discipline around cost control and efficiency will assure that profitability is maximized on available sales.

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-Gregory Larson is senior vice president and director of commercial banking at Brown Deer-based Bank Mutual Corp.

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