Making a small business profitable is challenging, however maintaining profitability can prove to be the ultimate stumbling block for many small businesses.  Under pressure to pay creditors companies take out short term loans to pay off bills that are due. This could be a sign that the business is in trouble. Particularly for small businesses, delayed profits translate into the onset of gaps between income and expenses but there are actions that can lead to your business making a profit again.

For the purpose of this exercise, let us consider a family operated business, MJ Manufacturing. Brothers and co - owners Mark and John have been running the business for nearly five years. They employ 100 people and make $5 million annually. The brothers worked hard to make the business generate a steady income and become sustainable. In its first year of operation it grew significantly; relocating from the spare room in the family home to a small warehouse to accommodate the growing numbers. With consistent growth the business saw a rise in expenses and soon costs were greater than income.

There has been no significant profit for two years in a row and there is a constant demand for capital. The brothers have turned to borrowing from every possible source including banks, friends and family. Debt collectors have begun calling and the business faces going under. MJ's warehouse is constantly  full of people but there is no real productivity to show for it and inventory has piled up. Despite this nosie, there is no real change within the business and at the end of each month it is still in red.  A thorough review of the company is needed before it goes under.

In the case of a family-owned business, the owners are often too emotionally attached to the situation at hand to overcome it. Its best to have a fresh pair of eyes go over your books to look at any disparities. Other measures to re-start profit generation are:

•   Downsize
•   Close unproductive divisions
•   Come clean with creditors
•   Creating incentives
•   Expand services

Downsize

One of the first measures for any business facing financial difficulties is to downsize. To meet their escalating costs Mark and John will have to reduce up to 30% percent of their workforce. This has to be done to keep the business from going under. The brothers must identify essential staff and let go of the rest.  As this is often a very difficult task, particularly as you are removing a livelihood from a person, advice is critical at this point.  Businesses should check their respective state government websites for more information and also review the federal Fairwork website for guidance: http://www.fairwork.gov.au/Pages/default.aspx

Close unproductive divisions

It is crucial to look at non-revenue generating activities and the time used up by them. Unproductive departments also create unproductive workers that are taking away revenue. Review where your costs are outweighing your revenue and address this as soon as possible.

Come clean with creditors

Owners need to be honest with all lending parties, in this case banks, friends and family. The move will reassure creditors that someone at MJ Manufacturing is in control of the finances. Creditors don't want to hear stories all the time especially banks, they want to know that you are serious about your finances and the business. Request vendors for 90-day extensions and they can provide you with some sort of re-payment plans to ensure that both their needs and yours are met

Creating incentives

MJ Manufacturing should establish an incentive based marketing plan. This will enable the business to see who the valuable employees are. The business can start by offering an extra 10 percent commission to staff who meet all sales targets and contribute towards revenue. Similar incentives can be set up for workers in the production line and servicing staff.

Expand Services

The business can also increase revenue by expanding its existing scope of services to include added benefits such as personalised or customised products with logo imprinting. Again by reviewing existing services businesses can see where a market niche may lie. Sometimes simple opportunities can be over looked, but if you take time away from the business to review, you can obtain the necessary clarity to find them.

These measures will enable MJ Manufacturing to overcome its stalled profit as often all a business needs is for the owners to get tough with themselves and the company. Small changes can help businesses in the red, cross over to green.

 

-The example of MJ Manufacturing has been used to illustrate what may happen to any given business. It bears no resemblance to any existing operating entity.