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Tue, Nov

Focus on finance

Can you improve your financial management? Colin Thompson from Cavendish provides insight into areas that can help you achieve the greatest possible return on investment in your company.

If you’re looking to grow your business, you have to pay proper attention to the financials. But what does that mean exactly? Yes, it’s more than looking at the sales figures. According to Colin Thompson from Cavendish, if your ultimate goal is to increase profits and achieve the greatest possible return on your investment, every job and every customer should be measured by `net profit return` and `positive cashflow` payments. Here’s his take on good financial management.
What’s your personal profitability? ?| |To truly analyse the profitability of your business, you must first examine your personal rate of return. From this personal perspective, what is your major expense? It's your time. By now, you should have developed the habit of continually asking yourself this basic question: Would I pay someone else my hourly rate to perform this task? If not, you are failing to maximise the return on your time. In other words, you are investing your time in an area that yields less than the optimum rate of return. You are incurring a ‘loss of opportunity’ cost. This, in turn, affects the overall profitability of your business. This method also is how to measure personal profitability for every employee.??
What about your people profitability? ?| | Payroll represents one of the largest expense items for most businesses. As a business grows, it typically hires additional staff according to the most pressing need at the moment. Once a person has been hired, often she or he can become a permanent fixture, even when the company's needs change. Many entrepreneurs are too busy creating products, designing services, and generating revenues to pay close attention to employee performance. Over time, the result can be an inefficient and ineffective staff and a bloated payroll. Every employee should be measured by the `net return of profit` to the business he/she contributes in their job performance.
Do your customers measure up? ??| |Some customers are more profitable than others; some may actually be costing you money. Can you identify which is which? There’s not necessarily any connection between the size of the customer or the volume of business they produce and their profitability. There are several questions you should ask as you examine your customers’ profitability: How often does each customer purchase from you? What is the average size of each purchase? What is the net profit margin of the product(s) purchased/service(s) provided? How much time is spent providing customer service after the sale? What is the ‘product returns’ record of each customer? What is the overall `net profit return` from each customer each month/year???
So concentrate on profitable customers? ?| |Many companies regularly ‘fire’ ten percent of their customers. They stop doing business with those who generate the least revenues or yield the lowest on their return purchases, choosing to concentrate on their more profitable customers and attracting more like them. At the very least, be diligent in rooting out those customers who actually cost you money - regardless of the revenues they generate. Every customer should be measured by `net profit return` by job/by month/by year!
Work on relationships ?| |Building and maintaining long-term selling relationships is the key behaviour and skill of the top ten percent of the money earners in sales. If you could take everything we know about communications, put it all in a large pot, boil it and distill it down into its critical essence, it is about the importance of `relationships` in successful selling. You may have heard that time and again, but do you actually put the theory into practice?
Sell to lots of people ?| |?Anyone can sell to a few people, some of the time, but only the very best human relations experts can sell to a wide variety of people, and sell to them repeatedly. The only way that you can make the kind of big money that you are capable of is by selling more easily, and more often, to the prospects you talk to, and by having those prospects open doors to others through testimonials and referrals. Measure all activity by `net profit return` at all times and implement the right business models in your business to measure all activities.
Decide emotionally, justify logically? ?| |We are primarily emotional and we make most of our decisions on the basis of how we feel. We may carefully consider all of the logical and practical reasons why or why not with regard to buying a product or service, but in the final analysis we tend to go with our gut. We listen to our inner voices, so where there is no real relationship, there is no sale.
Be happy ?| |?Psychologist Sidney Jourard found that 85% of a person's happiness in life comes from happy interactions with other people. The reverse holds true as well: 85% of a person's unhappiness or problems/issues in life comes from difficulties in getting along with others. So measure your success at all times to be happy.
Focus on the key variables? ?| |Everything that you ever learned of value in the profession of selling, regarding your product or service, or personality, is only helpful to the degree to which it contributes to the building of high quality relationships with customers. Measurement of your business is all about `net profit return`, therefore you must have the right ingredients to be successful in business at all times as follows;
- Have an open learning mind
- Employ the right people with the right attitude and they will return you the right net profit return
- Everyone within the business builds long-term relationships with the customers/suppliers/and fellow employees
- Implement the right business models to measure the business at all times
- Everybody within the business is an expert in their job area and continues that learning curve to improve at all times

 

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