As a consultant, the first thing I do when I walk into any company is assess things from a financial perspective. Is the company making or losing money? And by how much?
More often than not, the company is barely eeking out a profit or making just enough to support the owner. And the owner is almost never happy with the company’s current financial situation.
There are two ways to fix this scenario: First, cut expenses; and second, increase revenues.
Make Cuts, Not Costs
As many a wise business person knows, you can’t save your way to prosperity. But you can reach prosperity sooner by spending less. The first step is to look critically at your company’s expenses and determine where you may be able to make some cuts. This process takes real discipline, which is why it’s best to have someone help you objectively identify cost-cutting opportunities (and let’s face it, provide some tough love along the way).
Ask yourself these questions as you evaluate your expenses: Do you need to spend this money at all? And if so, can you spend less without negatively impacting your business?
Overhead expenses such as rent, salaries, and insurance probably won’t change. But see if you can streamline these fixed costs just a little more. For example, is your air conditioning getting turned off every night? Can you spend $50 on new business cards rather than $100? Can you pay new store hires a little less? Do you really need to send out mass mailings, or can you get the same results using e-mail? And if you really need that direct mail campaign, can you send out mailings four times a year instead of five?
Be methodical. Go through every single line item on your financial books and take a good hard look (it’s best to be away from the office or store when you do this so you can give this task your full attention). Print out a year’s worth of expenses, listing accounts on the left and months across the top. I always set up three columns to the right after the totals: The first for notes, the second for how much I think I can reduce that particular expense (if at all), and the third for the revised cost.
But the process doesn’t end there. You have to diligently stick by your newly created budget and monitor your progress every month. Think of it as balancing your checkbook. How much was budgeted for marketing in August and how much did you actually spend? Use whatever accounting program you’re comfortable with to print out reports each month (every accounting software package, no matter how basic, can generate a spend v. budget report). If you’re under budget, you’ll have more money to spend later. If you’re over budget, you’ll have less money to spend later.
I recently went through this exercise with a client and together we cut nearly 9 percent in expenses without any negative impact to the business whatsoever. And all of that money went directly into the owner’s pocket, thus increasing revenues.
I haven’t worked with a single company which didn’t have some expenses that deserved to be trimmed. Odds are good that you’re sitting on some excellent opportunities for saving money. It’s up to you to find them.