Every organisation’s aim is to make profit or some gains. However, there are instances when cash flow becomes tight, and one is left with no option that than to focus on controlling their existing assets by reducing inventory and being stern on debtors.
Interestingly, many start-ups and average businesses have much capital tied up in non-current assets – the property, plants, and equipment used for the creation of goods and services for sale. If you have property, plant, and equipment assets that are sitting idle or not generating enough cash flow, this may impact the value and financial health of your business.
If a company’s cash flow and profits are not as encouraging as it should, it may be as a result of lack of commensurate production rate from its fixed assets – the plants, equipment, and technology that help you generate profits. Making good returns from these fixed assets may appreciably affect the bottom line because it ensures investment capital is generating the most cash flow and profit.
Companies may take different approaches to maximize profit or minimize loss based on their own organizational strengths. While product differentiation and low price can be critical to maximizing profit, controlling cost and maintaining market share may be more important in to minimizing loss. Regardless of what assets a company owns and how much cash it holds, loss over extended periods of time will eventually weaken a company’s asset position and decrease the amount of its cash holdings.
One way to maximise profit is for an organisation to be able differentiate itself by providing top-quality products or services to be able to command higher prices in the market. It’s likely that all else being equal, the higher the price that companies charge for their products’ or services’ unique quality, the more profit companies can expect. The differentiation strategy becomes an appropriate option only where companies have a target markets in which customers are less price-sensitive, but more quality-conscious than customers of other markets.
Alternatively, companies may also adopt the low-price strategy in order to cater for customers looking for products or services with basic functions at competitive prices. When the demand for a product or service is supple, the lower the price, the stronger the demand will be. The simple trick here is that mass production and expanded distribution is the key to the success of a low-price strategy. Though, companies are expected to earn less revenue per unit at a lower price, the much increased sales volume will lead to more total profit.
At times, organisations can suffer losses because of cost overruns. It is therefore prudent to check cost as a major step toward lessen loss. Companies are in a better position to make profit when they maintain consistent low-cost level and are able to deal with shocks from market downturns. We all know that the lower the cost of production, the larger the profit margin. Essentially, companies are likely to become defenceless to price shocks and can sustain considerable losses when the cost soars to a level that is inimical to high profit margin.
Maintain Market Share
To minimize loss, it is important for companies to strive to achieve the break-even sales volume by securing a satisfactory level of market share.
Many businesses make the mistake of thinking that all they have to do to attract customers is to develop exciting new products or services. However, strategically identifying and targeting prospective customer’s needs should be the first step to developing a new product or service. They are to consider the needs and benefits impacts, positively or negatively, the future success or failure of a new product or service.
Businesses must first of all assess their competencies in terms of what they can offer best which the target market needs. It is ideal to focus resources on prospects likely to purchase your product.
Thus to increase your profit margin, you must strategically apply your market segmentation. A company’s ability to segment markets effectively is crucial to its success. Segmentation yields much returns when used in strategy development, product and market planning, and sales targeting.
Remember, if your expenditure exceeds your income there is no way you can save enough to grow your business. Let the money used for flashy cars and spacious buildings be recouped into the business and it will grow. A company is a living organism with blood running through it. If you allow it to grow you can enjoy the “windfalls;” eat around it but not the from the centre otherwise it will dehydrate and die.
BY: ISAAC NUNOO