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First, keep in mind that your primary focus should be profit. To increase return, you need to work on three major pillars: culture, costs, and sales.
The primary concern of any business must be lucrative: a profitable company has the money to reward employees, offer exciting careers, and invest in new products, companies, and technologies.
Less profitable companies inevitably sink into mediocrity in every way – regarding morality, product quality, etc. Doubling profits requires focused, consistent, firm and fair management, willing to become different and better than most other companies.
It is important to rely on meritocracy and use the philosophy of continuous improvement to increase your profits. This philosophy should be part of the company’s culture, creating and encouraging a culture of excellence among all stakeholders.
To create a winning culture, employees must have the opportunity to reach the top, but only the best should be able to get there and be rewarded for it.
Cutting costs should be taken very seriously. You have to be among the best in the world to make businesses run better at a lower cost.
Costs should be categorized between strategic and non-strategic. Strategic costs are spending on things that apparently add to the business and improve in areas of business, marketing, and R&D (Research and Development).
Non-strategic costs are the costs necessary to run the business but do not directly bring improvements or profits. An example of a strategic cost is sales investments.
The company needs to follow two main rules for managing its costs: overcoming competitors about strategic costs during good and bad times and not pulling any punches when it comes to cutting non-strategic costs.
It is important to analyze costs to succeed in reducing non-strategic ones. It is crucial to think that all non-strategic costs are unnecessary and must be justified. There are no “off-limit-costs, ” and the manager needs to assume that all other expenses can be discontinued unless proven otherwise.
Managers make the mistake of being cautious in cutting costs. Cut first and ask later. An advantage of reducing costs is that if you make a mistake, someone will be ready to tell you almost immediately, and you’ll be able to fix it.
Another important point of attention is the decision-making: decisions must be made without delay. If you do not need data, do not spend your time analyzing them, make a wise decision quickly.
It is imperative to be someone in a higher position because suppliers are already used to dealing with buyers and know how to negotiate with them. Have a director or a manager analyze the costs of each provider thoroughly.
Also be concerned with research and development. Often, executives leave control in the hands of researchers because they do not have the knowledge to do so. You should look for a suitable manager who can measure the company’s R&D return, increasing your chances of profitability.
The first step in reducing costs is to see all values as, at best, a necessary evil. Every cost is something that must be ruthlessly and as far as possible banned from any firm. There are no off-limit costs, and they are obstacles to the company.
Ask yourself: if you eliminated an individual cost, what would you lose regarding revenue and profit? How and where? If you do not know, then you do not need this expenditure. Only maintain costs that are extremely necessary; you do not have to think twice to eliminate them. Eliminate first and think later!
Firmness and ability generate respect, not resentment. It is the combination of toughness, incompetence, and mediocrity that engenders resentment. Therefore, if you demonstrate competence, your firmness will be accepted.
There is an almost immediate way to increase profits. Send a circular to all vendors, saying that times are bad and that from now on (or in the next twelve or eighteen months) you will not accept price increases, so there is no use in insisting.
An easy method to favour your company’s balance sheet this year, although it only works once is to delay your payments. Most vendors prefer to wait to receive it to permanently losing you as a customer. Never pay a bill until the supplier covers your company at least twice. Some providers may take up to two years to claim payment for a bill.
Whenever there is a price increase tell the suppliers that you are going to research the competition.
Plan a saving of 15% in product purchases and 30% in contracting services. If you cut too much, some people will complain. Let them complain and wait. If they complain too much, rethink that particular cost.
It is impossible to convince them that you believe in a meritocracy if those whose performance is small can keep on the job and receive the salary. Firing a bad employee encourages others to produce more for the benefit of the company, and that is a meritocracy. It is possible to reduce up to 25% of staff in most companies without anything happening – without any loss of value.
A busy employee is forced to set priorities and does what is important. When it comes to staff, micromanagement or lack of oversight may inevitably lead to slow and ineffective employees. The only way to promote efficiency and eliminate unnecessary work is to keep human resources scarce.
Pay good salaries and only offer benefits that your people value. Any bonus, any perk that becomes “automatic” no longer has value as motivation and becomes an instrument of maladministration, not good management. Bonuses, rewards, and punishments are significant, with bonuses being more effective when granted on a case-by-case basis and at irregular intervals. Grant raises whenever they are earned and never otherwise.
The most difficult part of cost reduction is resistance to stakeholder change. Often, the people involved do not see the importance of the process.
Therefore, it is vital that the company’s culture be responsible for showing the importance of reducing costs for the company; make it a part of the firm’s routine. It is also important to value employees who strive to make this happen in the best way.
You should understand that when selling, you should not see the customer from a company’s point of view. You should see the client as a person and, as such, emotions are critical when closing a deal. Whenever you make a sale, be sure to ask why the customer is interested in the product.
Also, keep in mind that depending on your type of business and your field, customer loyalty is essential. It is much easier to sell to a loyal customer than to win over a new client; so seek satisfaction and rapport with your customers first.
Which entrepreneur does not dream of multiplying profits? It sounds like a distant dream, doesn’t it? Bob Fifer, a leading financial advisor, says that this is possible and brings us a clear plan to get there.
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