How does a business survive and maintain a profit?

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Explanation:

1. Customers

Find and keep your own customers – you have to be able to solve their real problems & sell yourself effectively.

Too many businesses rely on ‘being in the supply chain’, have too few major customers and do not invest personal time and effort in developing and maintaining customer relations – remember, ‘people buy people’.

Check their credit rating and monitor their speed of payment.

You have not made a sale until they’ve paid the bill. Some customers have bad habits over slow payment; some are big enough to know better. Some will go under before they pay – avoid them.

2. Risks

Assess risks & their potential impact – e.g. customer or supplier closure

Develop contingency plans to mitigate risks

We live in a risky business environment. Don’t assume everything will be OK – look at the potential risks, pitfalls and liabilities for your business and at how you can reduce the biggest risks or anticipate how you will respond if the worst happens.

3. Opportunities

Look for ways to create new value  – e.g. new pricing, products & offers to stimulate demand

It often takes longer and costs more than you think to innovate or do anything new.

Use the technology – social media, tablet computing and smartphones are constantly changing the ways we can do business

There are always new opportunities and growing confidence in the economy accelerates these. Many of the most attractive are not in the UK but are international.

Innovation and new approaches can open up promising opportunities but experience tells us that when doing anything new often costs more and takes longer to implement than you first expect, so be prepared to increase your investment of time and money for those new ideas. That means doing your research to find out just how attractive an opportunity it is in the first place.

4. Money in – manage cash and break even

Forecast and monitor your cash flow very closely

Aim to maintain/increase profit margins rather than just increasing sales turnover (bottom line not top line)

Monitor breakeven on the business, customers, products, staff.

Beware of ‘buying’ work at cut-throat margins. Profitable businesses can fail because they run out of money, often suffering from slow payment and lack of credit. Aim to be cash-positive and you will sleep better at night. Break-even is the point at which the business, a person or a contract starts making a profit and is always an important measure.

5. Money out – manage costs and debt

Keep your fixed costs down: avoid costs which are not essential.

Aim to grow sales on a variable cost basis – borrow, rent or lease assets but don’t buy things or hire people you don’t need.

Keep in contact with creditors & lenders to avoid nasty surprises.

Businesses can be wasteful; you don’t need to be. Invest your money only in assets and projects which will provide a strong return. The worst time to ask a lender for more money is when you really need it. Up to date management accounts are essential and you must read them to monitor the health of the business.

6. People

Optimism – positive, realistic leadership with open communications

Set & monitor clear & realistic targets – sales, costs, project completion, debt etc.

Move unproductive people & customers out of the business.

At the end of the day it’s all about how you manage relationships with people. You can tell a lot about a business from the quality of interactions between its managers, employees, customers and suppliers.

Explanation:

No business can survive for a significant amount of time without making a profit, though measuring a company's profitability, both current and future. Without sufficient capital or the financial resources used to sustain and run a company, business failure is imminent.

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