A great question to ask is – Why are some companies more profitable than others?
It’s perhaps a good starting point for the second, and (in my opinion) even more important question. How can you make your company more profitable?
We know that some business owners and executives focus on the wrong issue.They look to grow the top line rather than the bottom line in the mistaken belief that high sales revenue automatically leads to high profits. Recent instances of this approach and its devastating consequences being highlighted in the media.
If you already have a business and it’s not performing very well, you may need to ask yourself three questions:
  • If the market is bad, can you find a more profitable niche or segment that you can move to with confidence? This is easier if you’re a general business who needs to specialise rather than a specialist who has a reputation in one field and needs to jump to another specialism.
  • Do you have a competitive advantage that you’re not making the most of (it happens) that you can promote more extensively or can you development a competitive advantage (differentiation is usually easier than cost leadership)?
  • Are things so bad that you need to leave this market by selling or closing the business? Sometimes a business that isn’t commercial viable on its own can become a profitable side-line in a better established business through synergies and shared costs.
The old saying that “turnover is vanity, profit is sanity but cash is reality” could never be truer.