What Steps Do Companies Take to Maximize Profit or Minimize Loss?

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Profitable businesses are not different from people who effectively manage their finances, live within their means and adopt a lifestyle that does not create high indebtedness. To maximize profits or minimize losses, a company follows such operating philosophies as prudent investing, avoiding excessive spending, employee training and gradually improving productivity.

Increase Sales

  • Perhaps the most effective way to maximize profits or minimize losses is to increase sales. To reach this goal, corporate management may commission market-research studies from consultants, heed economic developments and conduct brainstorming sessions with salespeople. These discussions are essential because sales and marketing personnel are closer to the ground, with respect to market trends. Top leadership can ask personnel to be creative and propose new ways to woo customers and improve client service, shying away from silver-bullet solutions that are outside the scope of the talks.

Cut Administrative Charges

  • A company can increase net income by cutting its administrative charges, also known as "selling, general and administrative" expenses. Reducing SG&A costs is often the preferred outcome for profit improvement, especially if the business cannot grow sales and doesn't have the money to invest in long-term capital projects. Top leadership may ask department heads and business-unit chiefs to sift through internal processes, identify mechanisms that cost money and come up with sound ways to save cash. Senior executives also could direct department supervisors to consider all options and not deflect the pain of pursuing difficult ideas, such as reducing the work force and shutting down nonperforming businesses.

Slash Production Expenses

  • Corporate management knows that unproductive processes prevent manufacturing supervisors from taking meaningful action, generating an occupational environment where costs could go out of control. Properly managing production plants and manufacturing equipment is a money saver, and company principals may ask production foremen to recommend effective ways to lower costs. Foremen can propose the discontinuation of specific products, the consolidation of several manufacturing processes into specific silos and the use of alternative production tools -- such as clean energy -- to lower overall maintenance costs. For example, combining production processes into specific silos can cut costs if the processes are scattered among small, far-flung locations.

Other Considerations

  • A company can determine the results of its cost-cutting or profit-improvement efforts by reviewing its statement of profit and loss, also known as income statement. This report includes the firm's expenses and revenues, as well as its net income or loss. If the business is successful in maximizing its profits or minimizing its losses, the corporate net income shows a higher amount.

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