It's important to think like a big company and not be afraid to turn down business if you're looking to improve efficiency in your SME
The need to cut waste and focus on efficient growth is a double-edged sword hanging over most SME owners. Habit and a one-day-at-a-time mentality can prevent directors from focusing on strategy.
The solution, though, could be as simple as popping to the stationery cupboard for an A3 pad and pencil, according to founder of Comerga Consulting and serial entrepreneur Mark Mills.
His key advice is that there are always efficiencies to be had and costs to be cut, but the priority has to be in seeking profitable business over cutting cost. Hence the first priority is to concentrate on lucrative customers, which means an end to overservicing or undercharging existing clients.
"You can cut your costs and waste to the bone but unless you've got a profitable business all you're doing is delaying when you go bust," he says.
"So, the directors need to get some pads and pencils and write down who their clients are, what it costs to service them and what the company makes from them.
"I can guarantee that at any company there will be some clients who are loss-leaders. You have to identify who they are and then make a note in the diary that you will cease doing business with them in six months unless they become profitable."
Continue to read Identifying your least profitable clients feels ruthless but is key to efficiency on Guardian Small Business Network
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This is so true!
After a year of two in business, I started to record the projected spend on all my regular clients for the forthcoming year and would review the YTD spend against the forecast every three months.
I operate on the basis of a min. client spend with various % of profit levels factored in depending upon many factors.
This allows me to quickly spot which accounts are under or most likely to be under performing and can be addressed accordingly.
Just a few percent of the client base not being operated at the right level can and will have a major impact to your bottom line. Sometimes it isn't always the clients spending the most money will be the most profitable. You need to dig quite deep to see where the profit actually is and don't forget to take into consideration cash flow no point having a nice commercial client paying every 60 days if you can't afford to service the debt period.
Okay I own up that I still have four or five of the under performing clients but I see this as more of doing a community service to should we say the more vulnerable members of society and can take the small hit on these accounts.