After you have determined the root cause of your company’s problems, you must now reorganize to make your company profitable. All companies have strengths and weaknesses, and it would be wise to recognize which areas are assets to you and which need improvement.
Identify Assets and Liabilities
A good business turnaround plan would have you determine how your profitable core is composed and which products or services are the biggest money losers. A business turnaround requires you to focus on the good, as the products or services that are the foundation of your company should be maintained and given far more attention than your company’s weaker elements.
Once you have determined what products or services are money makers or money losers, you should use your best products or services as the foundation of your reorganized business – this is key for a business turnaround plan. This may not result in any significant changes; for example, if 90% of your business is profitable and the other 10% not, then eliminating the weaker elements will likely not fundamentally change the nature of your business.
However, if 20% of your business is profitable and the rest not, then this will be a serious reorganization that will likely change the very nature of your company. In this situation, you would have to discard inventory, facilities and perhaps even let go of people associated with the unprofitable components of your company. A good business turnaround plan requires that you focus on what produces positive cash flow and discard what doesn’t.
There is no economic reason to maintain the divisions of your company that do not generate positive capital. They are a drain on your resources and on the parts of your company that do make money. A business turnaround plan must include the changes necessary to make your company profitable, focus on what works, and discard or at least make significant alterations to the rest.
Take Costs Cutting Measures
Of course, there are other changes you can make for your business to become more profitable. Not only do you need to reorganize your business around its profitable core, but also you should look into how best to cut costs, which your business turnaround plan should discuss. Wages, supplies, inventory, and rent are the four biggest costs a company faces, and they understandably cut into a company’s profits. Regarding wages, it may be to your advantage to institute a wages freeze in order to save on costs.
You may have a fixed rate for supplies and other inventory; however, there may be a way to renegotiate those contracts to a lower rate or even begin looking for another supplier with lower costs. Finally, the rent you pay for a building can be negotiable should you realize that its simply too high, or above fair market value, or you can find another building in another location for a cheaper price.
Business turnaround plans only work if your company becomes profitable, and sometimes you have to cut your own costs rather than sell more product or services to make that happen. If you really want to increase your profit margins, then you must take all of these factors into consideration. After all, lower costs equal higher profits.
Author’s Note: Previously published here.
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Thayne Carper spent 4 years of college competing in student business plan competitions. He’s never won a business plan competition and was dropped from his college’s entrepreneurial program for lacking potential. Today, he is one of the youngest published experts on the topic of business turnarounds and cost reduction. Visit his website lower supply costs up to 30% for a copy of his report “The Definitive Guide to Doubling Your Profits in less than 6 Months” and learn how you can easily lower supply and service costs up to 30% without hiring a consultant. Learn more: http://www.ThayneCarper.com/
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