Benjamin Franklin is quoted as saying "Beware of little expenses. A small leak can sink a great ship." As you work to keep your business afloat in these increasingly turbulent waters it's important to remember that while the waves outside will make your business rock and sway, it's the leaks in the hold that will cause it to sink.
One of the challenges facing the owner of a business (or the captain of a ship) is that you will rarely have the time to leave the helm to inspect the status of your hold. Perversely, when your business is taking a beating and springing new leaks, you have to work even harder at the helm managing and these new leaks often slip by unnoticed till you find yourself floundering. Fortunately we have some tips for you today to help you work through that concern and keep your business afloat and profitable.
Here are eight ways you may be able to plug profit leaks in your business:
1. Look at gross profit margins. If the margin has been deteriorating, find out why. Determine if increases in direct costs can be passed along to the customer. Analyze the product to see if it can be reformulated or redesigned for cost savings.
If you sell a number of different products, determine their individual gross profit margins and their mix. Give particular attention to low-margin products to see if it's still worthwhile to carry them.
2. Payroll costs are a major item in most businesses. Perhaps a more efficient plant layout or automation would result in reduced labor needs. The initial investment may be costly, but more than offset by future payroll savings. Consider the use of temporary employees and subcontractors if your business is subject to seasonal variations.
Payroll-related costs are fertile areas for cost reduction. Fringe benefits can easily amount to 25-50% of direct payroll. Review employee classifications for workers' compensation insurance. Improperly classified workers can be costing you significant premiums. Review group insurance programs. Solicit bids for the programs every three years. Consider higher deductibles as a means to lower premiums.
3. Review telephone and postage costs. Are all telephone calls necessary? Is the telephone being used effectively? Can money be saved by alternate shipping and receiving carriers?
Is your 800 number really a benefit to your customers? In these days of unlimited long distance plans talk with your customers to be sure that you're not paying for what would already be free calls.
4. Review credit policies. The longer it takes to get paid, the greater the risk of loss. The 80/20 rule states that 80% of your revenues are generated by 20% of your customers. If this is the case, it may be wise to review the other 80% of your customers to see if you can continue to serve them cost-effectively. Otherwise, your time will be better spent soliciting new customers.
5. Analyze inventory levels. Determine if any obsolete inventory can be reworked or sold for salvage.
6. Review fixed assets. Consider disposing of excess machinery and equipment. Determine whether it would be better to buy or lease major assets, especially those subject to rapid technological change and those assets used infrequently.
7. Review purchasing policies and costs of supplies, products, or raw materials. Compare prices of other suppliers. Switch suppliers where appropriate, or renegotiate for better prices with your current suppliers.
8. Enlist the aid of employees by soliciting suggestions on cost reduction. Many companies have generated significant savings using this approach. To encourage participation, consider implementing a bonus program based on a percentage of costs saved. Be wary of "quick fixes" that will have no impact, or worse, prove costly in the long run.
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3.26 Copyright (C) 2008 Compojoom.com / Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."
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