Greetings!
Tough economic times lie ahead for many small businesses. With credit markets tightening, oil prices climbing and healthcare costs rising sharply, the companies that stay smart with their spending are the ones that will weather this storm and come out on top. Smart spending requires just that, smarts. Use your financial information to maximize your growth and profitability opportunities by making better decisions about your business. Below are some tips on how to do just that.
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| PINCHING THE RIGHT PENNIES |
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Using Product Line Profitability
News of the recession has many small businesses reviewing their expenses and trimming costs where they can. A little belt-tightening is not a bad thing, as long as much of that is coming from back-office activities and overhead costs. Once that is done, then what? The answer is to strategically managing your resources, and one of the best ways to do this is to understand what product lines or service offerings are driving your profitability. Only then will you be able to know the right pennies to pinch or, in many cases, reallocate without jeopardizing the long-term health of your business.
Product line profitability helps you know:
- where your profit is coming from.
- where to focus your money and efforts.
- what product or service offerings are draining profits from your business.
- how to determine your minimal markup so that you can sustain profitability.
Measuring product line profitability:
It isn't rocket science, but it does take some investment of time to set it up. The valuable information you will get from this exercise is well worth the investment. (Click here to learn more on how to do it.)
Using Product Line Profitability:
Surprised by the results? Thought your largest product or service offering would be the most profitable? Once you have the numbers you might find yourself confronted with the following:
- Do you need to adjust your markup percentage on some product lines? Are your product costs or overhead draining your profit? Look at the cost structure of your product lines and also your overhead rate-there may be opportunities to reallocate expenses while being transparent to your customers.
- Determine what you are going to do with product lines that are not generating enough profit. Do you invest in them to turn them around or do you drop them from your portfolio? Do you adjust their pricing to make them more profitable?
- Do you invest in underdeveloped product lines, those that generate a lot of profit but are not a big player in your offerings? Where do you find the money to do so, from an unprofitable product line or outside source?
- What is the impact on your cash position if you move away from large, but unprofitable product lines? Make sure you balance the need for cash that these generate with your investment in other product lines.
These are just a few "levers" that you can pull to manage your product line portfolio and identify which are the "right" pennies to pinch. Keep the cycle going; do this every year or ½ year or more often if you have an automated system such as Quickbooks. The key is to continuously monitor this and measure how your investments in each product or service offering is doing so that you can continue to grow profitably, no matter what the economic situation may be.
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| COST CUTTING STRATEGIES FOR SMALL BUSINESS |
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Health Insurance Options:
Rising healthcare costs have many small business owners scrambling to find alternatives. The following article from the New York Times highlights where some small business owners go to find coverage that they can afford. (read more)
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