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Improving profits during a downturn

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Starting a new company or rebooting an established concern is rarely easy but doing either during a pandemic requires intestinal fortitude and a game plan.

Companies that are restarting after COVID-19 shutdown face a formidable task that requires changes. Management experts say the key is to add revenue, without increasing indirect costs and overhead, to drive profit.

Discuss Ideas

John Collard, chairman of Annapolis-based Strategic Management Partners, offered several ideas to restart an established company profitably. They include offering new products and services to customers, looking for new tasks for those under contract, entering new markets with existing offerings and adjusting pricing.

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“Think in terms of activity-based costing and net profit margin,” said Collard. “When overhead is allocated (or not) on the wrong cost base, profits become skewed in the wrong way. That can adversely affect pricing. It’s important to develop managerial accounting systems that give visibility to costs required to produce revenue by activity.”

Collard also cited meticulously managing assets and resources, making sure the lines of communications are clear with employees, basing incentives on profits (instead of revenues) and considering merging with another company to fortify the assets that are under roof.

Build Your Brand

Then comes understanding how to market the company.

Given the shutdown, “You can’t rely on word of mouth or get to networking events, so if you want to drive growth,” said Craig Burris, CEO of Baltimore-based SALESROCKIT (and former CEO of SmartCEO magazine), “you have to think differently.

How?

“First, you have to recognize the inside sales environment and maximize your efforts to drive sales opportunities,” said Burris. “You can set up sales automation technology that maximizes sales time. Then you build a workflow model, make sure that you have solid data on your prospects and execute.”

The other way to foster growth that some companies are finding success with is “to function like a media company and wrapping a media brand around their business.”

These strategies are about inviting prospects into their communities and creating opportunities to do business with them.

Another level of dealing with a company rebuild is to reassess the employee roster to ensure that each worker is producing in their specific role.

“The first item on any agenda is to carefully evaluate, via interviews with employees, where there may be a lack of profitability. Reduced profits are often due to the lack of employee production,” said Mallory Starr, a Chevy Chase-based member of the Institute of Management Consultants. “That can also lead to bad feelings between management and the underperforming section, which can point toward conflict management sessions.”

Starr said, “Once the conflicts are surfaced, you do interviews to get clarity and to get people to understand each other. That’s led to some interesting conversations but those who follow the advice usually move forward.”

Just Ask

Collard noted that seeking expert input from outside the organization can be key in acquiring a fresh perspective.

His main point is to not be afraid “to explore a company’s strengths and to consider how they can be applied elsewhere to drive profits and cash flow. And likewise, don’t be afraid to explore weaknesses and how they can be overcome and improved.”

By Mark R. Smith | Senior Writer | The Business Monthly | April 2021 Issue

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