Recently, I was listening to a business consultant who specializes in acquisitions and turn-around situations. He noted that companies in general have a tendency to follow high growth periods with a period of increasing expenses.
Many of these expenses have no relationship to the growth per se but deal directly with the sense of prosperity. In short, the profitability of the company quickly disappears into inflated overhead. After this cycle of growth and inflated overhead, the cycle repeats itself. The companies have to increase revenue even more to cover the expanded overhead.
But what happens when the sales growth isn’t possible to cover the increased expenses? What happens if at the end of the inflated expense cycle we hit an economic downturn?
Well, business owners just have to look for ways to cut back their expenses.
The first place to look is employee expenses. Are you still paying overtime? If so, you may be able to make adjustments in work flow and scheduling to reduce and/or eliminate this costly expense.
Can something be outsourced at a better rate than done “in house?”
Another area that can get out of hand is employees’ use of company credit cards. Often when employees are spending “company” money, they don’t think about the expense. They don’t consider if the purchase is a good deal or if they can “stretch” their dollar. I know one business owner who reduced his travel expenses greatly by just giving his employees a per diem and took back the company’s credit cards.
Company cell phones are another place to look when cutting costs. When is the last time you checked your plan and minutes used? Are there better plans now offered by your current carrier? Or are there better offers from other companies? Now that you can transfer your phone number, it makes sense to check on phone rates on a regular basis.
What about automobile expenses? Does it really make sense to maintain company vehicles? Would it be better to reimburse employees for company miles traveled? Does anyone review mileage to determine how the vehicles are used? When’s the last time you reviewed the auto insurance and compared the rate you are currently paying to what other vendors are offering?
Speaking of insurance, this is an area that always seems to be moving up at a much higher rate than the rate of inflation. Business owners are always struggling to find ways to keep their insurance rates affordable, especially if they are offering health benefits to employees.
Again, you must regularly compare costs and services of vendors. Talk to insurance agents and ask their opinion on ways that you can reduce your expense that best suit your situation. They might recommend higher deductibles, greater pass through of costs to your employees, or a change in the type of coverage.
Another area of review would be your dues and subscriptions. Are you receiving publications that you don’t really read or gain value from? Are there trade groups that you have outgrown? Are you getting your money’s worth from the organizations you belong to?
Just remember when reviewing this category that in many organizations you get what you give. You might not get value because you have not been participating in the group’s activities and it is not a function of price but your involvement.
And last but not least, you need to review the supplies category. I am always amazed at how office and operating supplies can grow out of control. You might want to review and analyze this category to see what opportunities for savings you can find. For example, make your employees aware of the cost of sticky notes! They will be shocked at what you pay for those tiny little pieces of paper.
Lynn Vos is area director of the University of Georgia’s Small Business Development Center. Contact her at 651-3200.