ensuring profitability

Profitability is the result of managing an organization from a financial perspective. This view is based on clarity with respect to:

  • Product and service profitability
  • Client profitability
  • Expense control
  • Sales forecasting
  • Report analysis
  • Capital needs

Product and Service Profitability There are two aspects to assessing profitability of products and services. First, determining the baseline direct and indirect costs from a life cycle perspective helps to identify ways that the labor, material and other costs can be reduced. Second, examining the profitability of products and services relative to one another establishes the contributions of individual offerings to overall profitability.

Client Profitability Not all sales are good sales. Profitable revenues come from "A" customers who accept products and services that meet or surpass the mutually determined quality, that understand the relationship between quality and price (and don't nickel and dime), that pay on time, that communicate effectively, and that become walking testimonials to our businesses. Focused marketing [Link to growing revenues] and effective controls [Link to controlling projects] enable an organizational focus on profitable customers.

Expense Control In controlling expenses our clients focus on two areas: limiting the internal cost of production of our goods and services while maintaining quality; and ensuring that operating costs are kept to a minimum.

Sales Forecasting There are several different techniques for projecting sales: Historic-based extrapolations, customer-based projections, sales force forecasts, regression analyses, and expected values. Different techniques are suited to differing situations. The value of sales forecasts is that it enables various futures (scenarios) to be characterized and planned for.

Report Analysis Financial metrics are one part of measuring organizational progress [Link to measuring progress]. Effective analyses start with selecting the appropriate set of financial reports and ratios to report on. The value of the analysis comes from understanding the data relative to past, forecasted and industry numbers and making choices about how to change the values of the indicators.

Capital Needs The sales forecasts, scenario development and cash flow forecasts help define whether the organization has sufficient capital to accommodate sales or whether outside funding is needed. Based on a determination of capital needs, funding sources can be identified and suitable presentation documents, such as Business Plans, can be prepared.

Contact us if you need assistance in developing and/or implementing your financial plan.







  © 2012, Raven Business Group, LLC.