How important is profit to your SME?

Profit

Whilst profit is a major focus for any organisation, it’s smaller and medium sized enterprises that are so much more reliant on generating and growing their margins to remain viable, particularly in challenging economic environments. It might be easy to assume, therefore, that they are more risk averse, or don’t make the same investments as their more established counterparts.

But some interesting statistics have been published that show that smaller companies are often ahead of the game in this regard.

  • Just under 33% of SMEs currently generate more than 20% of revenue outside their home market. Almost half will do so in three years.
  • More than 33% identify themselves as early adopters of technology; 52% of smaller companies invest in business analytics and 58% in business management software (58%).
  • Larger SMEs have moved on to invest in other technology, including mobile (41%), social media (44%), and the cloud (40%).

The study also highlights some key characteristics of small and medium sized enterprises and issues they face including;

 

SMEs are increasingly:

  • Bold and agile – able to try new methods and tools with little bureaucracy to hold them back
  • Technology driven – they know this is a key survival tactic
  • Embracing analytics – they are working smarter and making the most of the insights they can gather to improve their operations
  • Working in mobile technology, cloud and social media to respond to changing customer and market demands

 

Issues they face

  • Labour costs – both local and overseas
  • Customer expectations – the global and empowered customer has increasingly high demands, even from smaller businesses
  • Difficulty in measuring ROI for campaigns and expenditure
  • Making quick business decisions based on accurate information
  • Global competition from local and overseas companies

 

What tools are available for SMEs to better calculate (and grow) their profits?

Despite embracing technology and having numerous tools available to them, SMEs benefit the most from the more simple business solutions out there. And there’s nothing more basic than needing to manage, monitor and maintain the balance sheet.

In the latest version of SAP 9.1, companies can not only calculate margins in the traditional ways (moving average cost, first in-first out and standard cost) but also by batch or serial number. This means that the cost of an item can be managed and tracked on a serial or batch level from the moment it arrives in your warehouse, to the moment it leaves as an end product (or service).

 

What are the benefits of this method of valuation?

  • Cost variances can be reflected in the product profitability – giving you an accurate valuation down to the most minute of detail

  • The cost of an item leaving your warehouse is the actual inbound cost for that specific serial number or batch

  • Profit margin can be reviewed in Sales Order (pre-allocated items) or A/R invoice for each batch or serial

  • You can make business decisions about the future viability of products, suppliers and processes based on true and reliable data

Even for non batch/serial managed inventory, a preview of transaction profit margin is available in all transactions even before it has been finalised, giving you the flexibility to adjust prices as and when needed.

 

Having the tools available is one thing, being able to leverage them for growth and to achieve your organisation’s objectives is another. Contact the Blue Ocean Systems team of expert ERP consultants who can help you to gain the right insights into your numbers.

 

Note: This story has also been adapted for publication in Steemit.

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