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MSA Blog

Profitability

By Barry Jenner

In these challenging times it is vital that businesses understand profitability by customer/client. 

Categorise customers into high profit, average profit, low profit and loss. 

Next, uprate loss incurring customers so they are at least low profit or leave. Uprate low profit customers so they become average profit.

Do this at least every six months as customers and processes change.

Do it yourself but if necessary get some outsside help.

How to manage your business and increase profit in volatile times?

By Barry Jenner

Leaders must do five things:

  1.  1. Manage your cash flow
  2. 2. Retain your best people (and exit the worst ones)
  3. 3. Retain your best customers (and exit the unprofitable ones)
  4. 4. Improve your profit (by removing waste)
  5. 5. Guard your energy (you'll need it when times get tough)

 

What about leadership needs to change?

The leader needs to set a good example regarding their targets and accepting the consequnces for not achieving them. The leader also needs to guarantee that the shareholders can get the right return on their investment. Profit needs to be locked in place, whatever remains is all you have to run the business.

 

This attitude forces the leader to take tough decisions. The leader needs to be seen by all concerned as "firm but fair" and decisive. It is better to make a decison, get it wrong, and make another decision, rather than decide to do nothing. Research shows 70% of change management initiatives fail, the key is to implement change using proven processes such as business tools and processes we provide.

 

Opportunities are:

 

  1. 1. Remove poor performing staff
  2. 2. Remove unprofitable customers
  3. 3. Remove waste in sales process
  4. 4. Remove waste in production assets
  5. 5. Reduce overheads
  6. 6. Achieve or exceed budgets
  7. 7. Remove inefficient suppliers
  8. 8. Increase average sales/customer by 20%
  9. 9. Improve cash collection by 20%
  10. 10. Other - please specify

 

You have less than 12 months to free up this cash. You will need all of it to fund your survival in this continued volatility. You must take action now.

 

Lastly, ask yourself "what barriers are there that are stopping me from making a start on a waste reduction program"? Fix whatever issues that come out of this thought process. Keep asking the question until all the barriers are dealt with and then just make a start. If you don't start within the next five days you probably won't. 

If you do, increased cash flow, reduced risk, and the ability to survive to continued volatility in the market are your rewards. 

Reducing Carbon Footprint

By Barry Jenner

With the advent of carbon tax in Australia transport operators need to keep monitoring and reducing their energy consumption.

 

They must measure fuel and other energy used and plan how to reduce it. Buying Euro 5 trucks is an obvious saving and even other small reductions are important and count just from the point of view of the business regardless of the legislation and when it applies.

 

Look elsewhere for best practice in energy consumption reduction and copy it where you can.

 

What small, incremental savings are possible? Slightly lower energy consuming cars for staff?

 

What other recommendations do people have?

Good Credit Control

By Barry Jenner
Some businesses visited recently were found to have inadequate credit control. The owners were not enforcing their terms and allowing debtors up to a year to pay!
That is ridiculous. Best practice is to follow up slow paying debtors a few days after they become overdue. With 30 day terms all debts should be collected in less than 60 days. Stop supply should occur when 60 days are reached.
In these challenging times businesses must be vigilant with credit control as failure to do so often results in business collapse.

Increase Rates & Prices

By Barry Jenner
Now is a good time to review prices. Some should be increased by the CPI and others by more or possibly less if there are special circumstances. It is important to keep your value proposition front of mind. That may require reviewing your Sustainable Competitive Advantage.
Use the increase to remind customers and clients of the value and benefits they enjoy from buying your products or services.
Does anyone think they should not define their sustainable competitive advantage or review prices now?

Are you a slave to your customers?

By Barry Jenner

Master and slave relationship; that’s how a leading transport operator once described many business relationships! Have you ever realised that some business relationships are like that?

 

When it dawns that you are a “slave” what do you do? After trying to change the operations process or increase the rates, one transport operator sacked his customer. As he could not make the customer profitable that was the right thing to do even though the customer was a well-known, large listed Australian company. Other smart operators also sack unprofitable customers; nicely. A major Australian bank says customers who are major suppliers to “masters” almost warrant being placed on their “Watch” lists. That’s because the “slave” often makes little or no profit or loses money supplying the “master”.

Do you have a written Strategic Business Plan to wean yourself away from over reliance on a "Master"?

How Are Profits Generated

By Barry Jenner

Some businesses owners, particularly road transport operators don't understand how profits are generated and under-charge for their services. Some also lack the conviction to say "no" to unprofitable work. By identifying profitability by customer and facilitating a Strategic Business Plan the owner can be mentored to charge a fair price. The outcome is a profitable, cash positive business. The owner runs the business rather than the business running him or her. They also get peace of mind!

What do others think?


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