Increase Profits By:
- Increasing Prices
- Cutting costs
- Using capacity fully
- Increasing Efficiency
- Cash Flow
Increasing Prices- increase in price means increase in revenue without raising total costs.
But may result to:
> large fall in sales,
> decrease in profit
> the fall in sales changes the increase in price per unit, (depends upon price elasticity of demand).
Cutting Costs + Expense of quality
lowering costs of production = increase the profit margin =
resulting in higher profit margins
Expense of quality- a decline in quality could have an adverse effect on the quality of sales + business’s reputation.
Using Capacity fully- Business has proactive capacity that is not being utilised = profits will be lower.
Increasing Efficiency- improving efficiency = increased profits; ways of improving efficiency for a business:
> avoid waste in poor quality
> don’t sell products that don’t meet up-to high quality standards
> use staff fully
> use minimum amount of resources to make products
Profit- surplus of revenue over total costs, over a period of time.
e.g. business earns (during a financial year), revenue of = £2 million & total costs of £1.5 million = profit of £0.5 million.
Cash Flow- cash inflows and cash outflows to and from a business.
Cash Flow Problems:
! customers slow to pay= delays cash inflows > difficulty in settling bills. This becomes concern if a business does not chase up its customers for payment.
! long periods of trade credit= allowing customer 30-60 days to settle their accounts > increase sales. ------- But results in a shortage of cash when needed.