Profit protection involves using various strategies to shield a company’s earnings from market forces and internal risks, ensuring stable growth.
It includes identifying, assessing, and mitigating risks to financial health, using defensive and offensive tactics. From market fluctuations to operational issues, these strategies aim to strengthen resilience.
Businesses focus on risk mitigation by implementing measures like diversifying revenue streams and tightening internal controls to prevent threats to profitability.
Check out this article for more insights on profit protection strategies and how they can safeguard your business’s earnings against both external and internal risks.
1. Managing Cash Flow
A healthy cash flow is vital to a business. It shows whether or not the business is able to meet its costs and grow. In order to manage cash flow, businesses must be able to forecast their cash inflows and outflows. This can be done through a cash flow projection spreadsheet.
This is a spreadsheet that lists all the expected cash inflows, such as sales growth estimates, price increases from suppliers, interest income, returns on investments or dividend payments, and loan proceeds. It also includes estimated cash outflows, including supplier payments, wages for staff, and operating expenses.
Managing cash flow helps a business prepare for future challenges and opportunities, such as whether it will be able to pass on rising costs to customers or take advantage of seasonal price fluctuations. It can also help a business avoid costly late fees by paying invoices on time. A robust cash flow management strategy can also help a business secure financing, pursue investment opportunities, and traverse economic uncertainty. The key to managing cash flow is keeping on top of your invoicing, preferably sending them for payment immediately after the work has been completed.
2. Managing Employees
Profit protection takes many forms. Buying business insurance helps businesses cope with the sudden, high costs of catastrophes that can wipe out otherwise functional firms. Other approaches include risk assessment and management. Managing employees is another common way to protect margins, with firms paying close attention to star performers and taking steps to ensure that employees don’t leave for competitors.
Companies are also focusing on legal compliance, trying to avoid fines that can derail growth for years. Technology-related risk protection is also in focus, with firms worried that new innovations will disrupt existing business models. Kodak, for example, failed to keep up with digital photography and was wiped out by Apple’s first iPhone, which offered better quality at a lower cost.
Finally, supply chain profitability is in focus, with firms attempting to minimise stock shortages that require discounting and over-supplies that need to be marketed heavily. Fujitsu’s solution for this is a SaaS platform that merges information from different data sources intelligently and performs high-speed cross-application analyses. This helps to reduce the time needed for analysis by at least 40%.
3. Managing Taxes
During times of economic uncertainty, rules and regulations tend to change. Business accountant based in Melbourne stay on top of these changes and make sure their clients are aware of how to avoid penalties or maximise business tax benefits.
As well as keeping up with changing rules, accountants can offer guidance on how to best structure payrolls and investments. They can also advise on how to claim government funding or tax credits. For example, the research and development tax credit is worth up to 60% of qualifying expenses but every year over $60 billion goes unclaimed.
Owners are also looking for their accountants to help with employee-related issues such as how to hire more effectively and retain staff during tough economic conditions. When asked, more than half of owners selected advice on workforce practices as a valuable service from their accountant.
During challenging times, businesses need their accountants more than ever. Hurdles to skilled migration and a raft of people leaving the profession have put pressure on accountants to up their game. Those who do will be able to provide the life-saving advice that small businesses need to survive and thrive.
4. Managing Finances
An accountant in Melbourne plays a critical role in ensuring that businesses are operating efficiently, securely, and legally. Well-organised finances and audit-ready processes give shareholders and potential investors confidence in a company’s direction and fiscal health. In a volatile economic environment, this is more important than ever.
During the pandemic, accountants have been essential for helping companies navigate financial hardships and restructure to avoid bankruptcy. Many businesses have benefited from government grant programs to keep payrolls paid and the lights on, and strong accounting is vital for managing these applications.
5. Managing Business Growth
Accountants are detail-oriented professionals who help a business stay on track. They collect invoices, bank statements, and receipts to analyse and record the details of a business’s transactions. They calculate taxes, send payments, and hold other fiscal responsibilities for a company.
As a result, they can provide valuable insights and guidance to help companies achieve their goals. For example, they can help businesses identify areas primed for growth by reviewing cash flow patterns, optimise inventory and pricing, and securing business financing if necessary.
While the coronavirus pandemic has shaken up the world of business, strong accountants will be instrumental in helping businesses adapt to new conditions and emerge stronger on the other side of adversity. Despite challenges like the skills shortage, hurdles to skilled migration and people leaving the profession, business owners continue to view their accountants as valuable partners who deliver concrete and significant business returns – especially when they provide proactive business advice.
In conclusion, profit protection is crucial for businesses to maintain stable growth amidst market fluctuations and internal challenges. By implementing strategies to manage cash flow, employees, taxes, finances, and business growth, companies can safeguard their earnings and ensure resilience.
Accountants play a vital role in this process, providing valuable guidance and expertise to navigate economic uncertainties and maximize opportunities for success. In today’s dynamic business landscape, businesses need their accountants more than ever to thrive and emerge stronger from adversity.
