A Principle of Profitability

Improve Internal Processes

Universal Accounting Center is all about helping small business owners like you improve profitability and, consequently, the longevity of their businesses. Under the Universal Business Model (UBM), there are three business functions that must work well together in order to increase profit: accounting, marketing, and production. Any of these business functions that act independently of the other two can doom a company.

We’ve discussed the importance of both marketing and accounting in the past. Today we’d like to focus on production: the internal workings of a business, the profit center of a business. When the profit center is running well, the entire business has profit potential.

In order to improve production, and in turn improve profitability, you must look at ways you can improve your internal processes.

Improve Internal Processes

As a business decision maker, you should always be searching for ways to better analyze and improve your organization’s processes. This is best done by asking questions. In fact, you should never stop asking questions, the most important of which includes — Is there a better way to…?

This is the basis of “continuous improvement”-always seeking a better way. Every employee has either external customers (those who use your products and services and pay you money) or internal customers (those other employees for whom you provide service). Meeting the needs of all customers should be the primary focus of you and your employees. Customer needs are always changing; therefore, your processes need to be changing also. This is what Quality is all about-meeting and exceeding customer needs at the lowest possible cost. Here are some guidelines for improving internal processes:

1. Find the problem and create a solution
Once you have identified the problem, or area for improvement, the first step is to brainstorm potential changes. Then, quantify the cost and potential revenues. Next, test your theory by making the changes. Finally, work for the results you want, evaluating all possible outcomes.

2. Use data and information from your accounting system to help solve problems.
This information comes from your historical database of revenues and expenses within your accounting system. If you don’t already have one then you need to get one, and soon. Without this information, you’re shooting in the dark, and missing, most of the time.

3. Continually benchmark against your competitors.
One of the most insightful tools to identify your strengths and weaknesses is to compare your financial information with that of your competitors. To make this tool useful, you must analyze your business against other businesses in your industry of your equal size. This is called “Benchmarking.” From this study you can identify areas in which you’re doing better, and want to maintain. More importantly, it will identify areas of interest where your competitors have figured out something you still need to learn. Much competitive information is available for free, or for a nominal cost, from different business and industry associations across the country.

“Improve Internal Processes” is just one of 9 principles that will make your business more profitable. Allen Bostrom, president of Universal Accounting Center, has written the book In the Black: 9 Principles to Make Your Business Profitable to help small business owners like you succeed. If this one principle has helped you, visit our site, Are You in the Black, to see how else you might benefit from these principles.