Identify profit initiatives

Overview

A company’s shareholders and external investors are increasingly focused on maximising profits across the company. 

This carries many benefits, including:

1. Making your business more appealing to potential investors; and
2. Generating additional cash to reinvest in the growth of your business;
3. Maximising the value of your business during a shareholder event.

The CFO’s role

As the CFO, you are responsible for proactively reviewing your company’s operations and determining opportunities to increase profit margins. 

There are many examples of how you can achieve this, including:

1. Working closely with the wider business to identify the underlying performance metrics;
2. Implementing performance measurement systems that capture the corresponding data;
3. Reporting business performance by the measures that affect value, such as sales volumes, price adjustments, cost savings and headcount;
4. Mapping business activities to profits to identify any non-profit generating activities;
5. Optimising efficiencies by implementing process excellence initiatives, technology automation and outsourcing;
6. Benchmarking your product pricing externally against your competitors;
7. Switching your sales team’s focus from generating revenue to optimising profit;
8. Restructuring your teams to drive meaningful change across the business;
9. Balancing the mix of growth versus profitability initiatives within your strategic plan; and
10. Encouraging the business to focus on projects that offer the highest value.

To deliver these profit initiatives, you will need to build strong relationships across your business and to develop a very strong understanding of your company’s activities.

Easy wins

The following quote from Jonathan Byrnes, Senior Lecturer at MIT, suggests that there are many easy wins for CFOs to identify profit improvement opportunities:

“At least 30 percent of each company’s business by any measure (accounts, products, transactions) is unprofitable, but that this is offset by a few islands of high profitability.”

This often results from insufficient focus towards setting targets and allocating profit management responsibilities.

CFOs should scrutinise data in a format that allows you to identify any easy wins and measure the impact of your proposed changes.

Summary

The modern-day finance leader plays a crucial lead role in identifying profit initiatives across your business.  This requires you to build up a strong understanding of your business activities and to work closely with each department. 

There are many benefits towards this including attracting investors, generating capital and maximising shareholder value.