How Small Changes Affect Your Business's Profitability
Few people like change, right? Fair enough. But if you’re serious about getting more out of your business, then you’ve got to be willing to do something about the status quo. After all, one definition of insanity is to keep doing the same thing and expect to get different results. So don’t console yourself with the thought that you’re simply too busy to deal with it. If it’s important to you, then it’s time to confront your fears.
Only you can define exactly what represents success for your business. Over the years I’ve watched top operators consistently outperform others in their industry, irrespective of the state of the economy, often by staggering amounts. This outperformance is generally referred to as the margin of excellence. These top operators live the view that “when you stop learning you stop living”. They cultivate a mindset that’s open to learning, and develop the courage to implement what they’ve learnt. This means being open to listening to others in their industry and beyond, and to sharing their own thoughts and ideas.
Failure on the other hand, has long been associated with a refusal to try something different. For example can you honestly say that you’ve never said “That sounds okay in theory but it won’t work in my business?”
Now…allow me to let you in on one of the best kept secrets of the business world. The secret being that it’s actually very simple to improve the profitability of your business. Invariably, all you need to do is to make a series of small bite - sized changes aimed at putting you into the High Probability Zones of Business Success, rather than just one huge change. BUT as I’ve said, you’ve got to be willing to implement the changes.
If you get the changes wrong you could worsen the situation, so you need to carefully measure the effect of each change. Close enough is NEVER good enough. Be persistent. If you get all the little things right…the big picture looks after itself. Always remember that you could be just one small tweak away from your optimum “twiddling of the dials”.
Let’s now look at an actual case in point. It shows the effect after 12 months of profit improvement strategies that were executed by this small business:
Sales: 15% increase (from $242k to $279k)
Gross Profit Margin: 8% increase (from 36% to 39%)
Fixed Overheads: 11% increase (from $61k to $68k)
Net Profit: 58% increase (from $26k to 41k)
Capital Employed: 3% increase (from $195k to $201k)
Return on Capital Employed: 52% increase (from 13.4% to 20.4%)
As you can see the result is a highly satisfactory 58% increase in profitability. This example illustrates graphically how small marginal changes, although modest in themselves, can result in a huge difference. Profit turnarounds of this magnitude cannot be achieved year-in-year-out but every business has room for improvement. The choice is up to you as businessowner.
It’s also worth noting that an increase in profitability also increases the value of your business. Assuming that the market values this business on the basis of a price earnings multiple of 4, the above profit improvement increased its value by $60,000. But there’s a rider. The advice and assistance given in this case would have been absolutely useless unless the client had been prepared to make a total commitment to the task. In the final analysis therefore, it’s up to you as businessowner to make it happen!
AJS Advisory provides on call business support that’s focused on guiding you towards making small bite - sized changes that put you into High Probability Zones that can significantly increase your chances of success in your business. Contact me now for a free independent assessment of the Profit Improvement Potential of your business.