Many of us will have made a New Year’s resolution for our business to be more profitable in 2012 than it was in the year that has just ended. But it may be that – as with some of our other resolutions – it’s what we want to make happen, it’s what we hope to make happen – but we’re really not sure how we’re going to do it.
For a lot of us, the plan will be work harder; run faster. Do what we did last year – but, somehow, do more of it.
Work harder not the answer
That might work for some. But for the majority of us, it’s unlikely to be the answer. Albert Einstein defined insanity as ‘doing the same thing over and over again and expecting different results. That in mind, doing the same in 2012 as we did last year – even with our intention to ‘work harder’ – is unlikely to be the answer to our problem.
“Exports are the answer”, say some. And in the current economic climate – both at home and in the markets nearest to us – being able to target a much larger marketplace can be no bad thing. No doubt, for some it may give the boost they need to improve their profits – so long as they do their ‘sums’ right, and in the going, don’t lose sight of what they already have. Sadly for others, ’exports’ will not help one little bit.
For many of us, the real opportunity to improve profits in 2012 rests in working ‘smarter’ rather than ‘harder’. In making what we already do ‘count’. In better understanding what adds profit to our bottom-line and what erodes it; what contributes profit to our business and what ‘leaks’ it.
For many of us, the real opportunity to improve profits in 2012 rests in finding and fixing the ‘profit leaks’ in our business.
Reduce ‘profit leaks”
How come? Well, if our business is one of those that still remain ‘profitable’, studies show its bottom-line for a year might be only two-thirds or even one-third of the potential profit it actually earned during that period (the rest was ‘leaked’). If our business is loss-making, it doesn’t mean we didn’t have any potentially profitable sales in the year. Only that together the ‘loss-making’ sales and other ‘leakages’ were greater. In either case, find and reduce the ‘profit leaks’ and profits will improve.
What will it take for us do to that? The first thing is for us to be willing to think differently (remember the Einstein quote?). The second is to start analysing and using the ‘numbers’ in our business differently (to give us fresh insights). The third thing is to be prepared for some big, big surprises when we do; when we better understand ‘how’, ‘who’, ‘where’ and ‘what’ generates and ‘leaks’ profit in our business. The fourth is to understand ‘why’ that is (what differentiates one from the other). And the fifth thing is to act on that fresh knowledge.
Here’s to a profitable 2012
The tools and techniques we need to help us do that (such as cost benchmarking, profitability analysis, and contribution-based activity) have been around for quite a while now. They just don’t get the widespread use they deserve. But what better time for us to start using them than now: the beginning of a New Year?
Have a successful and profitable 2012.
PS: If anyone is interested in attending one of the FREE two-hour ‘Stop Leaking Profits’ workshops that will be available during 2012, check-in at http://profitanalytics.co.uk/events/forthcoming-events for more details. The first two workshops in 2012 are in Belfast on 26th January and Newry on 1st February.
Leonard Brown, Profit Analytics Ltd, www.ProfitAnalytics.co.uk