Discover where your profits are coming from and increase overall profitability.

It is important to think strategically, and that does not mean you need a formal strategic plan, although it would be nice to have one. Start by adopting the appropriate language. This is facilitated by how the P&L is designed. Separate fixed and variable costs. Then structure the P&L by creating the report by product groups or segments. This is how the business is managed and will encourage dialogue and organization accordingly. You may be surprised where your profits are coming from. You may be able to increase overall profitability by eliminating some losers and not have to raise prices. Don’t let the old adage of loss leaders lead you down the wrong path. The competition will attack your profitable items and leave you with the losers. Therefore, separating fixed and variable costs is important.

Let’s not forget the Balance Sheet:

• Manage Accounts Receivable actively. Your customers have money; who are they going to give it to? You, if you ask for it. Calling frequently and following through is important. Don’t forget to get a commitment. I have seen drastic drops in days within a couple of months.
• Purchase of Fixed Assets should be a conscious decision. What is the expected ROI?
• Debt: What is free and what is the cost of what is not?