How To Double Your Profits During Economic Downturn?
There is no better time to review your business costs than during this current economic downturn, take this opportunity to put your “house” in order so as to ramp up your marketing effort in good times later when economy picks up again.
Let me use some basic numbers to illustrate my point
Just look at your key components of business Costs as a percentage of your Sale :
1. substantially Materials make up 30%,
2. Manpower ( both front line and back office support staff ) makes up 30%,
3. Rental makes up 20%,
4. Utility & Renovation Depreciation making up 15%, assuming other costs are insignificant,
5. hence leaving just balance of 5% as your Net Profits !
==> If you are just generating 5% Net Profits before tax on Sale, after tax Profit of just 4% on Sale, think about it, you must as well put your money in Unit Trust & earn 5% or more per annum, and then just go for holidays everyday and not worry about doing business, makes sense ?
Why are you still staying in business ? You need to justify to yourself and your spouse and children for staying in business by earning a Net Profits of at least 10% on Sale ! Sounds right ?
Ironically, many business owners especially those who are in F&B business, they are just earning a mere 3-4% net profits before tax on sale, working long hours daily, including weekends & public holidays. Start feeling there is no meaning in continuing to do so ?
So, start looking at your numbers as I speak and start doing something about it to do justice to yourself & your team of dedicated staff who are working long hours. Start to Manage your business by Numbers, stop Managing by Emotions !
I have personally helped many business owners understand their business Costs in my previous career in the corporate world (20+ years ) as CFOs & CEOs, performed many Cost Down ( CD), and managed to add another 5% minimum to their bottom line, achieving at least a 10% Net Profits on Sale yearly.
How did I do it ? Actually, there is no Rocket Science. Perhaps I can share my 2-cents worth on my proven “4M” Approach with the Business Owners here :
1. Materials ( trimmed minimum 1-2% on Sale, thereby adding 1-2% directly to bottom line) :
* Substitute lower Cost materials wherever possible,
* Reduce Unnecessary Material Wastage including Stock Write-off,
* Eliminate Unnecessary Product Features to cut down additional steps in production process,
* Re-negotiate for lower Prices with Vendors,
* Leverage Vendors by appointing Alternate vendors,
* Allocate Purchase needs to primary and alternate vendors to increase bargaining power ( don’t put all eggs in 1 basket )
* adopt Just-In-Time purchasing which requires your vendors to deliver to you according to your production schedule to help reduce your Storage Cost & stock Write-Off risk for those stocks with shelf lives,
* otherwise trade time for Quantity Discounts,
* Negotiate Long-Term Supply Contracts to lock in pricing.
2. Machinery ( trimmed 1%, added 1% to bottom line ) :
* Relook at your Business Operation ( Sales & Production ) Days Calendar and Machine Operating Shifts to ensure maximum machine usage to reduce downtime,
* minimize machine Set-up frequencies whenever possible to avoid non-productive production,
* Automate wherever possible ( can tap on government grants ) to increase throughput to increase productivity and reduce per unit cost.
3. Mix ( trimmed 1%, added 1% to bottom line ) :
* The more SKUs or Stock Keeping Units you have, the more raw materials & finished goods you have to stock, thereby increasing Stock Carrying Costs and Production Set-up costs & Downtime.
* Hence, start to streamline your Menu items, reduce your SKUs, stay focused to only sell a few SKUs which your customers really want, & make these few SKUs unique, very desirable & successful.
4. Manpower ( trimmed 4%, added 4% directly to bottom line ) :
* Outsourcing of your Non-Core business activities is increasingly gaining popularity in Singapore, especially more so in the field of Accounting and Payroll.
==> A simple example to illustrate,
* assuming you are currently hiring 1 Accounts Assistant and 1 HR Assistant, paying each an average of $2500/month, if you add CPF & fringe benefits and 13-month bonus, you are paying him easily $3200/staff/month.
* And You hired 2 ( Accounts and HR ), hence $6400/month.
* Outsourcing your Accounts & Payroll will normally cost you not more than 1/3 of original cost, saving you at least $4200/month and you still get your monthly Accounts Reports and all staff get their payroll and HR Admin done .
* Assuming your revenue is $100,000 / month, this saving is hence translated into equivalent 4% of sale !
In conclusion, somehow, my “4Ms” have been proven over and again to be able to easily save you 5%, thereby adding 5% directly to your bottom line. Assuming you are just earning a meager 5% Net Profits on Sale, with 4Ms, I am confident you can achieve a comfortable 10% Net Profits on Sale, doubling your Profits and hence making it more worth while to be in entrepreneurship.
Manage your business with the “Head”, but deal with your Staff & your Customers with your “Heart”, not the other way round, you will enjoy this journey of Entrepreneurship !
Good Luck !
If you need help, feel free to contact us at :
(M) +65 90880669
