07 Dec Strive for higher margins than your competitors
One of the most profitable things a company can do is increase its gross margins (sales minus the direct cost of sales divided by total sales). This can be done in one of two ways: increase selling price or decrease the cost of goods sold. A price increase may be difficult for long-time customers and those that are concerned about their own costs in today’s economy. However, if you haven’t had a price increase in a long time this might be something your customers will understand and accept. Lowering your cost of goods sold is also challenging, especially if you have a labor-intensive business. But remember that increasing the productivity of your staff provides the same benefit as lowering the cost of labor. If you haven’t looked at your staff compensation plans in some time, there may be an opportunity to implement an incentive-based compensation system that will both increase your staff’s potential compensation and increase productivity for the business.
The Operating Profit Margin is a measure of how efficient the business is in providing its products and services. Highly efficient businesses have lower operating expenses per dollar of revenue and therefore achieve greater net profitability.
A strategic buyer will try to determine whether acquiring your company will improve or hurt their existing gross margins. A smart financial buyer will look closely at your operating costs to determine if there are potential savings or hidden future expenses, and compare them to industry standards to make sure you fall within an expected range.
