The Profitability Stage
If your business has reached the profitability stage of the business lifecycle – congratulations! It is time to reap the rewards of all your hard work. At this stage, your business may still be growing, but growth will have slowed significantly, and your business should be enjoying a dominant presence in its market.
While the profitability stage sounds like the perfect place to be, many business owners find it to be one of the most challenging phases of business management. You may find yourself at a crossroads; with growth slowing and competition increasing, the profitability phase lacks the sense of progress felt in earlier stages. It’s also not without its own challenges.
Common Problems faced in the Profit Stage
1. What's Next?
The biggest problem our clients often face when they reach maturity is: what next? Big decisions need to be made at this point: continue trying to develop and grow the company, expand into new markets, or develop an exit strategy while things are going well? The decision of what to do next once your business hits profitability is a game-changer and a huge responsibility, so choose wisely.
2. Handling Competition
When you are at the top of your game, your competition will be at the top of theirs, too. During the profitability stage, you will have to fight off bigger, tougher competition than ever before. This can pose a challenge to many business owners finding themselves dominating the market for the first time, and it often means stepping up your marketing game to keep up.
3. Keeping your Business Fresh
Another way to maintain profitability at the maturity stage is by spending more money on research and development and innovating new products and services. It’s important to do your research before investing in new products, to make sure they’re products your customers might actually want; but, if you can prove your business isn’t a one-trick pony, this is the key to long-term profitability for most businesses.
4. Developing an Exit Strategy
At this stage, you might also decide that your business has reached its peak with you and it’s time to move on. You could do this by selling your business or merging with another company, or you could even go public with shares in the company to allow you to raise more funds for a new venture. Choosing how and whether to exit your successful business is a personal decision for most entrepreneurs and one that needs to take into account both the long-term prospects for the business as well as your own personal plans.
Businesses that implement, measure, monitor, and manage processes in their business avoid the risk of declining profitability.
AP’s Business Advisory team, work with businesses to ensure low profitability lines, systems or teams are identified as early as possible. Reporting from the businesses accounting systems are setup to report on Key Performance Indicators (KPI) and systems and processes are put in place to monitor results on a regular basis, allowing decisions to be made to manage the best outcomes for the business.
The most profitable businesses in any industry have committed to a process that they measure, monitor, and manage on a regular basis.
Our team works with businesses to focus on building systems, skills, and processes to improve profitability and cash flow.
We analyse all segments of your business to identify the key profit drivers and contributors to losses, and develop strategies to promote the profit drivers to achieve better outcomes and eliminate losses with negatively impacting business results. Initially, we meet monthly for 3 months to make a quick start and then every quarter after to keep the business on the profit improvement track.
For businesses that have key persons in their organisations that head up the Financial (Bookkeepers/Accountants), Sales & Marketing (Division Manager), Operations (Division Manager) or General Manager. One of the AP directors attend management team meetings as an independent mentor/advisor to the Founders/owners of the business. The AP director provides advice and mentors the business owners and managers in relation to the key financial, operational & marketing strategies proposed.
We review your proposed or existing pricing structures/model and advise you on whether the pricing model will generate enough profit and cashflow to ensure the business is financially viable, discuss different pricing models to increase profits and sales and review the potential for different pricing models for different sales channels i.e. pricing for online sales and shop front sales.
We review the best worker model for your business and industry. Business profitability can be impacted significantly depending on whether the business relies on full-time employees, casual or part time employees, contractors, or business associates. We advise you on the tax, contractual, government incentives and financial implications of the different worker models.
If you have an accounting system in place our team can provide training, so you are getting the most out of your system and it is always accurate and up to date. If you need assistance in choosing a system then we will advise the system that is best for you and your business after considering your industry, what you want to do on the system and your financial budget.
As your profitability increases, we review your current tax structures including the way transactions are structured and completed to ensure the business is gaining the maximum tax benefit and accessing all the government incentives available.
We identify the latest state and federal government incentives available to your business and industry.
We act as an independent sounding board for a business marketing strategy and plan and make recommendations about potential target markets, provide introductions to other businesses, and seek advice from our consultant marketing and branding consultants where the need arises. We are always pleased to review the financial budget for marketing to assess the benefit and ROI on marketing dollars spent.
The best businesses have clear financial goals that identify the income to the business and the outgoings, generally for a period 12 months in advance. A financial budget will allow the business to confirm the capital and income needed to grow the business profitability. We assist in preparing the business’ budget and identify the key numbers the business needs to focus on to achieve profit targets.
We are small business tax specialists. Our team keeps you abreast of tax obligations for GST, Income Tax, Capital Gains Tax, Payroll Tax, Land Tax, etc., and supports you to ensure you lodge tax forms and pay tax on time, so the business can focus on improving profits.
How can we help at this stage?
Accounting Professionals are experienced, independent experts in business development and management. We’re here to empower and support you at every stage of your business, from start-up to maturity and succession.
We can offer you expert advice, analysis and guidance to help you to make the right decisions for yourself and for your business at every stage. Contact us today to find out more about how we can help you to make the right calls once your business reaches profitability.
Get in touch with us today by completing that contact form here or call us: (02) 4297 0066.