Are you, as a business owner, managing profitability? Why do I ask? Jonathan Byrnes in his book, ISLANDS OF PROFIT IN A SEA OF RED INK, made the following statement. “In my research and work with companies in a wide range of industries, I have found that 30 to 40 percent of each company’s business-by any measure (accounts, products, transactions)-is unprofitable” (Byrnes, 2010, p.15). Think about what this means for your company and its potential. According to Byrnes the overall profit improvement opportunity for your business may exceed 30 percent (Byrnes, 2010, p.16). Finding that extra 30 percent can have an enormous impact on the market value of your business and its attractiveness to outside buyers that can enable you to have very successful exit when the time is right.
The starting point to finding this extra profit according to Byrnes is to effectively manage profitability through three key elements (Byrnes, 2010, p.19).
- Profit mapping-Analyzing profits by account and product.
- Profit levers-Finding these can change bad accounts into good accounts.
- Profit management process-Prioritizing the opportunities and appointing someone to take the lead. Byrnes suggests naming a person the Chief Profitability Officer and he recommends this be the CFO (Byrnes, 2010, p.79). Of course many small to mid size businesses cannot afford a CFO but can hire a part-time CFO to assist in managing this process.
I highly recommend his book to any business owner that wishes to dramatically increase his company’s profits.
*Byrnes, Jonathan L.S., ISLANDS OF PROFIT IN A SEA OF RED INK