Business owners’ motivations in setting up their businesses vary, but they have some things in common: one of these common denominators is the desire for their company’s profit margin to be substantial. Additionally, most business owners would like to see this figure increase every year. Moreover, if you ever come to sell your business, your profit margin is likely to be one of the first things a potential buyer will take into account; the greater it is, the greater value your company is likely to have to someone else, contributing nicely towards your pension. But what if your profit margin is not increasing? Or if it has become stagnant? I have worked with many businesses who are facing this problem, and helped them turn their fate around. Here are my tips to help you start this process.
Before you start to worry that your business is completely lost due to falling profit margins, I must stress that there are various different components that form a good business, and this is by no means the only valuable asset that a potential buyer will look for. My tool Value Builder takes this into account by assessing eight crucial categories and asking a series of questions surrounding them; this allows for the strengths and weaknesses of your business to be identified and a plan for improving your business’s strengths – and ultimately market value – to be created.
One of the Value Builder categories is financial performance, and this is what I am going to explore here.
What was your profit margin last year, before tax?
This is the exact question that my tool Value Builder poses, offering various different responses:
- we made a loss
- 0-10%
- 11-20%
- more than 20%
- not sure.
As you can probably work out on your own, some of these answers are more preferable. Whilst an answer of ‘More than 20%’ obviously comes with fewer problems than ‘We made a loss’, each answer comes with its own issues.
What if my profit margin fell?
Whilst it would be wrong to suggest a falling profit margin is not a sign that things need to change, it does not mean that all hope is lost. When I get this answer, the first thing I do with my clients is go through their books and see if they have the right numbers in the first place. Sometimes – not always – they have the wrong numbers, and then we can try to work out their real profit margin. Whilst this can alleviate their initial alarm that they made a loss, this misunderstanding can often be a sign that things within their company need to change.
Business owners need to know their businesses numbers. Numbers are the language of business so it makes sense to be able to speak the lingo.
If the numbers in your books are right however, I can then start to work with you – the business owner – to create a plan to improve your profit margin. Often there is a capacity issue, or a need to change the team around a bit to provide the right environment for a better financial situation.
How does the survey work if I’m not sure of my profit margin?
Sometimes, this is a more worrying sign than a falling profit margin! If you are unaware of the statistics surrounding your business, I will often advise that hiring an accountant could be a good way of getting a better grip on the numbers within your business.
We all have our strengths and weaknesses; if numbers aren’t one of yours, don’t be afraid to admit that! As a business owner, you bring your expertise and leadership qualities, you don’t have to be a ‘jack of all trades’. However, as I stated earlier, numbers are the language of business, by all means have a great accounting system, have a great accountant, but they are your numbers. I often work with my clients to help them get a better understanding of their finances, just another skill business owners need to develop.
Do I need to work on anything if my profit margin is healthy?
Regardless of your profit margin, completing my Value Builder report is still a good idea, because profit margin is just one component that makes a business sellable. Evidently, if your business has a profit margin of only 0-10%, much of my advice will be similar to that of a company who made a loss, as there is clear room for improvement still.
Secondly, even if you have a profit margin of greater than 20%, you still need to answer my questions:
- How does your profit margin compare to others in your industry?
- Is this margin giving you what you need?
- Is this money providing for your family
- Will it provide for the future that you want?
If not, then after completing the Value Builder questionnaire, we can once more explore how to increase your current profit margin.
My clients benefit from a whole range of supporting materials to help them in all areas of their business. If you’d like to know more about the business areas in which I can help you, call 01732 453 464.
To apply for a FREE Value Builder report to understand how potential buyers would value your business and your business strategy review to discuss strategies to maximise its value
Call 01732 453 464
Or email julianweekes@actioncoach.com
Value Builder: exclusive offer
Value Builder is an extraordinarily powerful tool to give business owners the insights they need to meet their business and personal goals, so I am personally committed to making it available to entrepreneurs in Kent, Sussex and Surrey, in the area indicated in the map.
Value Builder normally costs business owners £500. However, I am delighted to offer it to selected businesses free of charge – and I am also pleased to offer the follow up 90-minute 121 consultation to go through your results at my expense.
Why? Well, I want businesses to have the very best chance to grow and develop, delivering the results business owners and their families deserve.
Secondly, I want to see businesses thrive and recruit additional team members to further grow the business and help to boost the local economy.
The full list of towns where I can provide this service is below, but if you don’t see your location, give me a call or drop me an email I will let you know if I can help you. If I can’t, I’ll put you in touch with one of my colleagues who helps businesses in your area.
To apply for your FREE Value Builder report and business strategy review
Call 01732 453 464
Or email julianweekes@actioncoach.com
I help business owners in the following towns:
Brighton & Hove |
Hailsham |
Lingfield |
Seaford |
Bromley |
Hastings |
Maidstone |
Sevenoaks |
Cranbrook |
Haywards Heath |
Newhaven |
Sittingbourne |
Crawley |
Heathfield |
Orpington |
Tenterden |
Crowborough |
Hildenborough |
Oxted |
Tonbridge |
Dorking |
Horam |
Paddock Wood |
Tunbridge Wells |
Eastbourne |
Horley |
Redhill |
Uckfield |
East Grinstead |
Horsham |
Robertsbridge |
Wadhurst |
Edenbridge |
Kings Hill |
Rotherfield |
Worthing |
Goudhurst |
Lewes |
Rye |
Don’t see your location in the list? Drop me a line and I’ll let you know if I can help you – or put you in touch with one who my colleagues who works with business owners in your area.
My clients benefit from supporting material and coaching in the following business areas:
Sales & marketing |
Lead generation |
Sales process |
Business planning |
Time management |
Finance, understanding the numbers |
USP & POD (Unique Selling Point and Points Of Difference) |
Systems |
Team / Team dynamics |
Recruitment / DISC / personality profiling |
Leadership |
Business growth |
Strategies for profit |
Succession planning |
Exit strategies |
