Converting unprofitable businesses into profitable ones through financial strategy

1. How to Convert Your
Unprofitable Business into a
Profitable one ?
-
Ishan Trivedi
MBA (Finance)
Nirma University
ishan_trivedi2005@yahoo.com

2. First let start with what is profit ?

Profit is the difference between your
cost price and sales price.

3. So, either you need to reduce your
cost price or increase your sales
price in order for your profit to
increase.

4. 
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This gives rise to 3 types of
strategies that companies follow in
order to increase profitability:
Cost leadership
Differentiation strategy
Niche strategy

5. Cost leadership

Cost leadership is the strategy of reducing costs to be the lowest cost
producer in the market. This can be done by
1.
2.
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Operational leverage and
Financial leverage
Operational leverage: It is the strategy of reaping economies of scale. You
increase fixed costs while increasing production. By increasing production on fixed
costs, you distribute fixed costs on a larger number of products and thereby reduce
your overall costs.
Fixed costs include: Depreciation, interest, admin cost, advertising cost.
Variable costs include: material cost, labour cost, sales commissions.
Financial leverage: It is the amount of debt you take to buy your assets.
It indicates with how much of your own money, you can buy the required assets
(plant, machinery, land etc.)
Lower your own money and higher the debt, greater is your financial leverage.
For eg. It indicates that by putting in 10rs. of your own, you are able to own 100
Rs. of assets.

6. Differentiation strategy

1.
2.
In this strategy, the company tries to push up its price by creating
Additional value or
perception of additional value in its products.

Additional value: eg Vodafone charges higher price than its
competitors by differentiating based on its better signal quality.

Perception of additional value: Creating a brand through
continuous advertising. People prefer products that are more
advertised as compared to less known products. It is know as top
of mind recall in technical terms.

People generally do not compare the product
ingredients/specifications/dimensions before buying products.
Hence, even if you can create a “perception” of additional value, it
works.

7. Niche strategy
•
In this strategy, you focus on a segment so small that
your competitor is not able to service them.
•
If he tries to serve them, he will have to disrupt his
existing line which is more costly to him. Eg. A brand
that is focussed on clothing for overweight people.
This segment is small.
•
If mass producer enters this segment, he will disturb
his existing lines for a small segment.
•
Also, small segments can be charged a premium for
customized products.

8. Contact us

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If your business is suffering from
some problem, we are ready to help
you out.
You can write to us at:
ishan_trivedi2005@yahoo.com
We are offering free consulting to
companies located in India for a
limited time period.

9. Free services provided
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Increasing your profitability
Where to locate your plant ?
What should be the ideal debt to equity for your company ?
What should be the price of your product?
Which markets to target?
Which sector to expand into and when?
Choosing best machine between 2-3 machinery
How to retain your customers?
Which value added services to be provided?
How much production is optimum?
Making HR policies for your company.
Making a choice between 2 or more kinds of raw materials

10. Free services provided












Increasing your profitability
Where to locate your plant ?
What should be the ideal debt to equity for your company ?
What should be the price of your product?
Which markets to target?
Which sector to expand into and when?
Choosing best machine between 2-3 machinery
How to retain your customers?
Which value added services to be provided?
How much production is optimum?
Making HR policies for your company.
Making a choice between 2 or more kinds of raw materials