By Cruz at August 11 2019 20:17:37
So, thinking about this principle, let me ask you a question. If your sales grew 10% and nothing else changed, would your profit margin be higher, the same, or less? Profit margin is % of profit against sales. If you said the profit margin would be higher, then you are right. Why would your profit be higher? If you said because of the fixed expenses, you would be right. Your material cost, labor cost, and variable expenses would have gone up 10% but your fixed expenses would have remained the same. You brought in more revenue because of more sales and you spent 10 % more on material, labor, and variable expense to cover the extra sales, but you didn't spend any more on your fixed expenses. So, less overall expenses, would give you higher profit margin. Make sense?
Create A Capital Plan: Next, I would develop a capital plan identifying dollars to be spent on the business to increase its overall value. While all capital dollars may not entirely be discretionary _ i.e., investing dollars for anticipated return from growth _ it is necessary to determine how capital dollars will be allocated whether for discretionary purposes or general maintenance. Projects that require capital are critical for the company growth and must be managed to their desired return, avoiding shortfalls in ROI or issues involving "capital creep". If you haven't already, setting up a capital committee to review expenditures in advance of the start of the project provides some assurance that the projects have been vetted against return on investment. Lastly, developing a post_audit process enables the team to review and monitor the progress of ongoing investments.