How To Get Out Of A Trap Of Permanently Low Profitability?

Have you ever thought of closing your business when you saw your company’s profit percentage on the level below the bank interest rates?

There are many possible reasons for such a situation:

1. You optimize tax payments.
2. You invest now in future profits
3. You fight for a market share and you temporarily pay the price for it.
4. Your business model needs improvement.
5. You lost control over your business.
6. You lack capital to grow or to make necessary changes. 
7. Your competitors outperform you. 
8. You think it does not matter.
9. Dear Reader: Please add yours

Many CEOs or owners give all types of excuses to explain low profitability of their companies.

The following symptoms may help you in a self-assessment whether your company is in a trap of permanently low profitability:

1. You manage to grow your net revenues (even sharply), but your bottom line does not change (value and % of net profit remain low).

2. You keep saying year by year that you invest in high profitability in the future, but it does not happen.

3. You often blame your team for showing no initiative and no sufficient care about your company’s results.

4. You tend to make external factors responsible for your low profit.

5. You work harder and harder, but it does not improve your bottom line.

6. You do not measure ROI on every small and big investment.

7. Your team is not motivated to reach or exceed the targeted bottom line.

8. There is a very limited awareness of your company’s results among your team and they don’t even know a net income of their own areas of responsibility.

9. For years, there was no a strategic discussion in your company (using a holistic approach with the follow-up) about breakthrough plans for improving net revenues, gross margin, cost optimisation and motivation.

If your company experiences a trap of low profitability and you have identified that some of the above symptoms apply to your business, you have the following options to change that uncomfortable status quo:

Do it yourself

Advantages: It is free and can be a great experience for you and your team

Disadvantages: You will have problems with discovering solutions which you have not identified for years. It may take time and time is money.

Seek external help (consultant, mentor, etc.)

Advantages: If you hire the right person (consultant), you can get immediate results without trying to ‘break already open door’. Please note that effective consultants and mentors do not necessary sit in the ‘Big 5’ consulting companies only.

DisadvantagesIt costs but, if the cost produces sufficient, incremental improvement to your bottom line very soon, it is worth taking. It is also about going out of you company’s ‘comfort zone’.

Seek external help to 'get the ball rolling’ and then do it yourself

Advantages: Combination of advantages of Approach 1 and 2

Disadvantages: It is about going out of you company’s ‘comfort zone’.