Five tips to reduce costs and improve profitability

The critical success factors of a business define the threshold success of financial and non-financial performances. The financial factors describe how a business makes a profit and gets healthy cash flows. While the business factors show sales, operation and growth performances. Profitability is a surplus of revenues after covering operating expenses. Plans to achieve profit and growth begin from managing efficiency, productivity and performances. On the other hand, inflated operating costs and poor sales drive a business into a default situation. In this article, we explain key tips to reduce costs and enhance the profitability of a business. For Arabic readers, here is the link of this article in Arabic: Click Here.

Have you identified the right set of investment and operating costs?

Investment cost includes costs of pre-business studies, working capital and fixed assets. Operating expenses include variable and fixed expenses.  A business owner prepares a feasibility study to determine investment and operating costs. The feasibility study shows the best way to realise the business and achieve profitability. Higher investment cost leads to higher depreciation expense. Deficiency in managing manpower and operations leads to higher operating expenses. Inflated operating expenses lead to a higher break-even point. 

 Do you have a system to improve productivity and efficiency?

One of the reasons for business failure is the worker’s poor productivity and weak efficiency. Productivity shows the annual number of goods produced or equal value per worker.  Efficiency describes the turnover levels of working capital, assets, liability and equity. To improve productivity, a business organises, appoints, trains and manage staff. While the situation seems more complicated to improve the efficiency of a business. It requires the enhancement of sales and gets the best out of resources. Productivity and leadership capability influence technology choices and impact a business. Efficiency and productivity lead to higher revenues and profitability of a business.

Have you developed a product that customers want?

A business faces challenges to develop a product with a unique value that customers want. Failing to do so, a business will be difficult to survive.  A business which meets the needs of customers has a greater chance to grow and entertain the economy of scale. In the economy of scale, a business can produce cheaper products and outperform competitors. Enhancing customer experience leads to a reduction in operating costs and increasing profits.

Have you invested in the right technology?

A business can dominate the market and grow if a business invests in the right technology. Business technology describes hardware like equipment and the software to operate the hardware. Technology is influenced by the nature of the business, marketing factors and investment capital. The impact of technology is judged by its desirability, feasibility and viability. Technology influences the demand creation and cost reduction. Yet, it leads to shining competitive advantages, increasing profitability and acceleration of business.  Technology influences revenue by making a product that customers can’t resist to buy. Also, it reduces operating expenses by increasing efficiency and productivity.

Have you developed a strategy and a control system?

The business pays close attention to strategy articulation and control of performances.  This setup leads to the survival and growth of a business. The strategy encompasses aims, strategic positioning, initiatives, action plans, resources and key performance indicators. The strategy is articulated based on the evaluation outcomes of internal and external environments.  Yet, it is focused on the competitive advantages of the business. A business breaks down long-term strategy into annual business plan and budget. Execution of the strategy is monitored and controlled by management to judge performances against milestones. Strategy and control system enhances customer experience, strengthens competitive positioning and increases sales.  Also, it increases efficiency and productivity and contributes to higher profitability and growth.

 

Munther Al Dawood- Enterprise Expert

Grow Enterprise

www.growenterprise.co.uk

 

Categories business, enterprise, entrepreneurship, startupTags , , , ,

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