Profitability is a core concept that all successful businesses must understand. Without knowing how your company brings in money, it's much harder to invest in resources and projects that facilitate growth. Conducting a basic profitability review can help you identify opportunities for growth and where to cut spending.
The revenue your business earns should be used for securing growth opportunities. Your profitability review gives you two avenues to do so:
A P&L statement can help your business determine where changes are needed. For example, a P&L statement can inform a residential construction company that regularly builds additions to existing properties provide meager profits, that profit may not be worth the time and effort needed to execute these construction projects. Often, there are common threads tying together work that doesn't generate reliable income. Instead, look for opportunities to de-emphasize it and put additional time and resources into more lucrative ventures.
Your profitability review will also help you determine which business activities have the have the biggest positive impact on your company. As you shift your focus away from activities that don't provide a strong benefit, make sure to reallocate time and money into the work that does provide a great benefit to your business. These opportunities vary from business to business. Typically, identifying your best types of jobs can be done rather easily - whether it's your most stable crops or construction jobs that you can usually finish on time and under budget.
With this knowledge, you can target everything from hiring practices to major purchases of heavy equipment toward your most profitable ventures. The dual benefits of reduced spending on difficult work that provides few positive results and an increased emphasis on your most reliable money-makers can help every type of business.
Make sure you don't leave funds and opportunities on the table - conduct your profitability review today. Then, get in touch with Cat Financial for help acquiring the best tools for the job.