The business owner and entrepreneurs having ignorant of the situation continue to sell a money-losing product. Sometimes this is due to the sentiments attached to the product. These lose bearing segments of your business can reduce the overall profitability of the organization.
So be aware of the situation and make an informed decision at the correct time regarding whether to continue a particular line of product or not.
Evaluate the cost:
The all you need is to analyze is the cost involved in running the product or discontinue the product. Based on the cost and few other things you can easily decide whether or not to continue a product. Here the cost includes each and every cost starting from manufacturing cost, selling cost, administrative cost to marketing and distribution cost as a whole. All those costs accumulated together accompanied by advertisement cost ascertain the actual cost of the product. You should have a proper team of accounting professional having good knowledge of cost segregation to reach the actual cost of the product. A good bookkeeping service company can help you take all business decisions.
Opportunity cost:
While calculating every aspect of the cost we generally ignore opportunity cost. A good bookkeeper never ignores this cost. It is the cost of the time which you put keeping the product up-to-date. This could have been used to generate money launching a new product, or in research or in any other activity. The cost or the value of money lost in this entire affair is called opportunity cost. A good accounting system always keeps a track on the opportunity cost. This never let you behind in the industry. Nevertheless, it helps you falling behind and missing business opportunities.
The desired rate of return:
Accounting and bookkeeping organizations do not only consist of recording and summarizing expenses already happened. But it involves many types of involvement in business and marketing. One of those strategic costs is the desired rate of return. If an entrepreneur has a different line of business, he should be aware of the individual profit generating from each segment. The business owner can set a range of profit based on the profit of his existing business lines. That is the desired rate of return. If any segment is not able to generate the desired level of return then the business owner can take final decision to close that segment and deploy the time and energy in other segments so that they can yield more return.
Employee morale:
A good leader should not ignore the sentiment of the subordinates. A business and its growth all depend on the employee who is working at the ground level. Without their help and cooperation, nothing can be possible. So based on the result and outcome of profit it is not a good idea to take drastic steps to shut down a product line. Laying-off workers can lead to an environment of job insecurity. This will result in high employee turnover in the organization which is not at all good for the organization’s reputation. It also affects the productivity of the concern. Once the employee feels insecure the performance of the employee of the other departments will also go down. To match everything the entrepreneur has to think for a middle way. Instead of laying-off the existing employees an arrangement can be made to shift them to a new segment to learn new skills. It can help the business owner to go on searching for new talents for his business.
Cross-selling opportunities:
The bookkeeper finds it complicated when one product drives the performance of others. If your base product is performing poorly it can drive your overall sales to a minimum. These are the loss leaders. Though they are not directly related to the profit but reduce the overall profit for the organization. There are two ways to deal with those lose leaders. The first way is to ascertain how much the product in question is driving the sales and marketing of other product. The final thing is to consider the cost and profitability of those connected sales together to identify whether to continue or discontinue the loss leader products.
All those things are the strategic business analysis which is very important for a business in its path of growth and success. Only bookkeeping and accounting activities cannot bring profit to the organization. Outsourcing those regular routine booking activities can free up your management and internal staffs to pay attention to the other core of the business.
We the outsourced bookkeeping offers you the best safe way to excel your business in the competitive edge. Shift your routine accounting and bookkeeping services to us and consider your real business requirement.
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