Increasing Profitability

5. Focus

5.1 Simply focusing management awareness on profitability can have a dramatic impact.

• Even if cashflow is your top priority, this need not be at the expense of profitability.
• Make sure all your employees are aware of the importance of profitability.

5.2 Understand the key drivers of profitability.

• Set and monitor performance indicators. The most commonly used key performance indicators are sales against forecasts, costs against budgets, gross margin and staff costs. See Key performance indicators.
• Make sure they are the right indicators. Staff tend to work towards them whether they are good for the business or not.

5.3 Minimise the effect of distractions.

• Avoid unprofitable distractions. For example, one-off projects that do not play to the company's strengths or are individuals' pet projects.
• When managers must be distracted (for example, if you plan to float your company), act to control the impact. You might nominate one individual to take charge or pay an outside consultant to free up staff and give an objective view.