Business Tip of the Week: Strategy
by Gareth Cotten on 09/08/10 at 8:45 am
1 comment
Know where you make your money. All too often, business owners simply run their ventures from month to month, without ever doing an analysis of what parts are performing best. As long as they’re covering costs, and making a small profit, they never stop to examine which parts of their business make money, and which parts run at a loss.
What they should be doing is going through their business, product by product or service by service, and seeing which are their best and worst performers. Take an impartial view, and identify specific revenues and costs for each one. Very often, when doing this exercise for the first time, you find that you are subsidising losses from poor performers with the profits from your outstanding achievers – but that’s all been lost in the mix when thrown together in the income statement. Do you really need to have the loss-making parts in your business?
While there can be reasons justifying their existence, more often than not you don’t, and can then free up time and resources allocated to them. You can then use these newly-freed resources to produce more of your profitable offerings. Just imagine how much more profit you could be making!
An excellent example of this is with Union-Swiss, the beauty/pharmaceutical company. When the current owners, two brothers, bought the company from the previous operator, the company was producing over 100 different products. Within a very short time, they could see that most of what was being produced was unprofitable, and they slashed the number of offerings. They did this until they only offered one product, a scar tissue oil called Bio-Oil. Instead of wasting precious resources on the other lacklustre performers, they channelled all their time, money and effort into marketing this one product – and took the company from a turnover of a few million to over a billion within just a few years! They understood the value of knowing where they made their money, and applied this knowledge to the maximum…
Gareth Cotten is one of the growing breed of SA entrepreneurs with that ‘world-domination’ look in his eyes. Gareth runs the coaching and consulting practice 'Good Advice'. Gareth is also the 'course convener' for the University of Cape Town (Law@Work) Start and Manage a Small Business course and the University of Cape Town Basics of Financial Management course. View more articles by Gareth Cotten.
Tags: business, business tip, Business/Finance, Strategy
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