Business Planning
February is here and it has been a cloudy start to the year with a lot of North Island businesses being impacted with both flooding and road closures.
February, however, is if you have not already started, time to start thinking about this year’s business planning including how are we going to make more money than last year.
In summary there are four main ways to improve your business’s profit and cashflow which
are:
1. Growth
2. Improved Gross Profit Margins
3. Reduced Overhead Costs
4. Reduced Cost of Capital
If we take a deeper dive into these four main areas, there are depending on your business’s circumstances quick, medium and long-term solutions to achieving business improvement.
1. Growth – The main four ways to grow your business are:
a. Improved target marketing – this includes identifying both your point of difference and competitive advantage and then targeting specific target market segments to exploit your point of difference. Improved target marketing can be implemented very rapidly but is dependent on your business having the capacity to meet the extra demand.
b. Improved productivity coupled with improved targeted marketing to produce and sell more products or services. This is also dependent on capacity.
c. New product development – bringing new improved products to the market. This is a medium to long-term solution and requires significant business planning and possibly cashflow to increase capacity to be successful.
d. Acquisition of another business – this is a medium to long-term solution and requires significant business planning and cashflow to be successful.
2. Improved Gross Margins can be achieved from each or a combination of any of the following four initiatives:
a. Price increases – this is dependent on your competition and the supply chain. If there is a shortage of your product or services in the market, then this is a very quick and easy way to improve your gross profit margins.
b. Improved / streamlined processes to increase productivity – producing more for the same labour cost. If you have the plant capacity and demand, then this a rapid way to improve gross margins.
c. Improved processes to reduce waste including rework – this a rapid way to improve productivity and gross margins from existing capacity by only doing it once.
d. Supply Chain Review and Improvement – traditionally 50%+ of profit improvement will come from Supply Chain Improvements and Processes. While a complete Supply Chain Review can be a medium-term solution, it can also provide some very quick/immediate wins with significant savings from initially targeting bad processes and practices.
3. Reduced Overhead Costs can be achieved from a combination of an overhead review and improved processes. This is a medium-term initiative that can provide savings from a combination of duplication and over supply.
4. Reduced Cost of Capital (interest) can be achieved by renegotiating or refinancing borrowings and loans at lower interest rates. Depending on the type of borrowing and loan this could be a quick fix to reducing interest rates.
By initially focusing on quick-win items, profit improvement decisions can be made and implemented in weeks rather than months.
For more information on what help I can provide call John Raffaelli on (021) 625-871 or alternatively go to our website by clicking here https://intotheblue.co.nz
For more information on creating or improving a business model please call John on (021) 625-871, and further more information please visit Into the Blue.
