How Middle-Market Companies Can Increase Profitability

December 29, 2003

CHICAGO - In the current marketplace, middle-market companies may be able to lengthen the runway to future success by positioning for profitability, according to Grant Thornton's CEO Views newsletter.

Sixty-seven percent of middle-market companies plan to increase profitability, indicates Grant Thornton's Survey of Middle-Market Business Leaders. But how are these companies planning for profitability? Mark Oster, a principal with the firm's management advisory services practice in New York, offers the following tips.

Look At Financial Operations

"Streamlining back-office financial operations allows companies to trim overhead operating costs," said Oster, who described several areas that could present opportunities for cost cutting.

Cash flow: Improve invoice processing to ensure you are billing quickly - and correctly. And, make the collection process high priority.

Operating expenses: "Expenses should be evaluated against the company's goals and objectives," Oster said, and he advised that companies take a critical look at general and administrative expenses.

Financial arrangements: "While interest rates are still low, companies should review debt and financial arrangements for better terms," Oster recommended. "Talk with your lenders to see if more beneficial financial offerings are available."

Review Customer Relations

"At times, it can be counter-intuitive to sever ties with a customer," Oster said. "But, it can be valuable to review the client list and â€˜fire' customers who are not generating desired profits."

In addition, focusing on retaining profitable customers can also improve the bottom line.

"In this competitive marketplace, the cost of retaining valued customers is minimal compared to the time and expenditures that can be incurred when replacing profitable customers," he added.

Streamline Operations

"Although every company operates differently, benchmarking, pinpointing efficiencies, and improving strategies are steps that any company can apply to boost profitability," Oster noted.

"Technology solutions should also be considered to achieve effectiveness and improve operational effectiveness," he said, and suggested that companies benchmark technology efficiencies against best practices to determine new areas for improvement.

Align Employee Goals With Business Goals

To establish an environment of productivity, Oster advised that processes be put in place to establish "buy-in" throughout the organization.

"In the current economic environment, many business owners and leaders are feeling the pinch," he said. "But rank-and-file employees haven't been directly affected."

"To increase employee productivity, which will, ultimately, affect the bottom line, employers need to link individual performance with company performance. Employees will then see that achieving performance goals benefits the company's bottom line, as well as their own."

Grant Thornton is a leading global accounting, tax, and business advisory firm dedicated to serving the needs of middle-market companies. Twice a year, Grant Thornton produces the Survey of Middle-Market Business Leaders, which researches emerging trends and issues in the middle-market. For more information, visit www.GrantThornton.com.

Publication date: 12/29/2003