Your overhead is too high. It always is. It may not seem so now. But it will someday. That will be the day when the economy turns south, or a big customer leaves, or orders unexpectedly slow. And then you’ll be cutting and slashing.
That’s not management.
The smartest business owners I know keep overhead low and conserve cash even when things are good. Because things are never always good. But are you doing all you can to prepare for that day?
Are you paying enough attention to the financial details?
Do you get timely financial reports? Do you look at this month’s expenses compared to last month’s expenses? Do you read your general ledger? Do you have a budget? Is your bookkeeper afraid to bring any significant overages to your attention? Are you not paying attention to the details as often as you should, and are some expenses slipping through? Don’t worry – lots of us do this. Don’t worry – lots of us do this. But the successful business owners I know don’t micro-manage. They just make sure they’re closely looking at their numbers, or at the very least employing someone who is doing that for them.
Are you too extravagant?
Are you paying rent for an office in a downtown space when you know that a similar space in the suburbs would do just as fine? Is your office bigger than it should be? I get it – you want to impress your clients and your friends and project a certain image. But is it worth it? Maybe you’re making lease payments on an expensive car. You may enjoy flying first class and staying at four star hotels. Do you take your customers to the best restaurants? It’s all good. But again: is it worth it? Are you spending money now when you may really need it later? No one is telling you not to enjoy yourself or not to try to make a good impression. But sometimes less can be more.
Do you question the things you should?
You assume that your utility bill is what it is because that’s what it is. You think that the monthly support charge you’re paying to your IT firm is the norm. You believe that you’ve got the best mobile plan available. You think you’re doing everything you can with technology. Are you sure you’re right? Don’t believe me? Ask for an energy audit (many utility companies provide these). Bring in a couple of IT firms to assess your network and bid for your business. Call up your mobile provider and ask them if there’s a better plan. Haul in your software vendor, ask him to review your systems and make recommendations. What will you learn? You’ll learn that you could be saving money in more ways than you previously thought. Or at the very least making better use of your outside experts than you were before.
Do you choose not to?
You should re-negotiate that equipment loan but you don’t have the time. You know you could be getting better pricing on a certain raw material contract but you don’t have the desire to push the envelope. You’re sure that those freight bills could be lowered with a little negotiation but you’re busy doing other things. These are choices you’re making. Every day you are trying to be as productive and profitable as possible. Sure, you may be able to save a few hundred bucks by considering another waste removal service. But maybe your time is better spent selling that customer with the multi-six-figure contract that will go much farther towards the bottom line. And maybe you just don’t feel like it because you’re tired. It’s OK. This is your choice.
So how about a little spring cleaning of your overhead?
Things change. Your business grows, it shrinks, you bring on different people, different products, have different needs. What your company looked like five years ago bears no comparison to what it is today. Your overhead has changed too. It creeps up before you know it. Don’t let it creep up. Because if it gets too high for too long you’ll find yourself being forced to make changes that you weren’t expecting. Your overhead will always be higher than it should be. The trick is making sure it doesn’t get too high.