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ADVERTORIAL
Profitability Improvements for the

Business Owner

Being aware of the drivers of your company’s profitability is important for the
modern-day manager. It will impact your company’s value or your remuneration if
you own your company, or potentially your bonus as an executive.

- Noah C. Jensen, CPA, CA, LPA

Key Performance Indicators (KPIs) Pricing Your Product or Service
KPIs are important to track because they can tell you It is critical in today’s business environment that you are not
information about profitability before profitability is even making long-term commitments on price, or that any long-
measured. These types of KPIs are called leading indicators. term pricing commitments are met with a price adjustment
clause for any major fluctuations in material, labour, tariff/
An example for a manufacturer would be the number of
freight costs or foreign exchange. If you are, you should be
successful RFPs/quotations. The more you are successful
potentially thinking about future/forward contracts with your
in securing, the more work you will have to deliver in the
bank.
ensuing months.
If you are operating in an environment where costs are
We also have lagging indicators. These are indicators volatile, you should be uniting the supply side of your
based off your internal reports or your year-end financial business with the sale side of your business to ensure they
statements. An example for the same manufacturer might are communicating with one another. Prices should be
be a gross margin review. If gross margin has declined, you increasing in tandem with input costs. Failure to do that will
will want to change your quoting and estimating practices to impact your bottom line.
incorporate a change in material, labour, or subcontracting Why This Is Important
expenses. If your top-line sales number is down, you might The points above all discuss how you will manage to your
be pricing your product or service too high. company’s finances. This takes effort to do, which pulls you
Effective Management and Training or a team member away from delivering other value to your
customers or team members. Why should you make the
Profitable enterprises are a result of effective management.
time? Profits directly impact three things: cash flow to the
What does that look like in real life? A company in an owners (dividends, bonuses, etc.), cash flow for growing
industry susceptible to high labour turnover would have an the company, and the valuation of the company. In an
effective training program so that new employees would environment where many companies sell at a multiple of
be productive faster than a competitor with a less effective earnings, a $1 increase in profit can result in a $5 increase
training program who also has regular turnover. The same in value! Take this advice to heart and spend some time
organization may consider retention bonuses that are thinking through how day-to-day decisions will impact your
bottom line.
based on length of service to discourage job hopping.
These things cost money but show up in your gross margin
with a more productive labour force. Noah C. Jensen, CPA, CA, LPA is a partner at Racolta Jensen
LLP, a local accounting firm in Cambridge, Ontario. The topics
Having the right people doing the right work is another discussed here are complicated and should be discussed with a
major consideration. A scheduler would ensure that the qualified tax advisor aware of your complete situation. There are
shop apprentice isn’t going to be going to that complicated many variables that can impact the tax situation of the capital gain
equipment installation on their own, and that the master inclusion rate change. With time, we should see more certainty
electrician isn’t driving 50 kilometres to change a residential as to how the policy will be administered and develop better short
light. and long-term tax plans for individuals, corporations and trusts.

47 Dickson Street, Cambridge | (519) 622-1485 | general@rjllp.ca | www.rjllp.ca

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