Expert Speak: Mr. GK Pramod

Back to Basics to Achieve Profitability for SMEs

With the ever changing demand and supply dynamics of the markets, SMEs do feel pressurized to meet the requirements. The major challenge which they came across is to sustain and fulfill the requisites without hampering enterprise's profitability.

After covering two 'Sutras' for effective business growth - Scalability and Sustainability, we will have a session on third Sutra – Profitability in this blog. By understanding its various aspects, you can imply them practically and make them instrumental to accomplish organisational growth.

Profitability
A Microlevel organization is said to be Profitable when it makes enough profit to take care of its employees, customers, investors and the Microlevel Entrepreneur in a satisfied manner.

Importance of Profitability

• Profitability plays an important role in motivating the Microlevel Entrepreneur in the right direction
• If the profitability is not in there in the business, it becomes extremely difficult for a Microlevel Entrepreneur to continue in the business

Do’s

• Make sure the business unit makes profit from day one of its operation
• Cut down all unnecessary expenses
• Make sure that the Microlevel Entrepreneur focuses on the core business

Dont’s

• If the existing unit is not making profit, first make sure that it becomes profitable
• Don’t open up a new business unit if the first unit is not profitable
• Don’t spend extra money on additional resources

Case Study:

Case Study-1: (Product Business)

Ms. Usha is a Microlevel Entrepreneur from Mysore in Karnataka. She is selling natural fresh juice. The details of Ms. Usha’s business organization unit are as follows:

1) Name of the entrepreneur:               Ms. Usha
2) Name of the organization:                Sushruta Fresh Juice Centre
3) Nature of business :                         Sale of Natural fresh juice

4) Details of turnover for the past 3 years:

Let us understand the analysis regarding Profitability factors for Ms. Usha’s business (Product Business):

• Ms. Usha’s business has made 30%, 35% and 40% profit in the past 3 years
• She is making good profits
• As the turnover is increasing, she is also able to increase the profit margin
• This is a good, profitable business

Challenges in Profitability

• Uniformity in production and  packaging. 
• To create awareness among their customers that natural fresh juice will provide good health.

Case Study-1: (Product Business)
 

Mr. Charan Singh is a Microlevel Entrepreneur from Jalandhar in Punjab. He is selling fertilizers. 

                                                                                                                 
The details of Charan Singh’s business organization unit are  as follows:
1) Name of the entrepreneur:                  Mr.Charan Singh
2) Name of the organization :                  Guru Gobind Agro
3) Nature of business :                            Selling fertilizers, Seeds and Chemicals
4) Details of turnover for the past 3 years:

The analysis regarding Profitability factors for Mr. Charan Singh’s business (Product business) suggest:

• Mr. Charan Singh’s business has made 10% profit in the Past 3 years.
• He is not making good profits.
• As the turnover is increasing, he is not able to increase the profit margin.
• This is not a profitable business.   

Challenges in Profitability

• Mr. Charan Singh is making a large turnover but less profit.
• The challenges for Charan Singh are to increase his profitability along with his turnover.

Key Points to remember:

• Make sure that the existing business unit is profitable. Increasing the profitability doesn't necessarily mean, you may have to open up more units. You can increase the profitability either by increasing the price for your products/services or increasing the customer base.
• Once the existing unit becomes profitable, a Microlevel Entrepreneur can think of opening new business units.

With this the journey of understanding the three vital 'Sutras – Scalability, Sustainability and Profitability' for business growth ends here followed up by your actions to implement them practically in the business growth strategies and witness the difference.

We will continue our journey of understanding various 'must know' topics for Small and Medium Enterprises (SMEs) in the subsequent blogs.

The blog has been authored by Mr. GK Pramod, Co-founder, The Second Gear - MBA for Non MBA's Mentoring Module Concept.

To contact the author, e-mail at gk@tothesecondgear.com

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