Page 6 - Focus MJ 2018

FOCUS » FEATURED STORY
Reduce Your Expenses.
Increase Your Chances of Survival.
By George Scott
Maximizing pro tability is the primary objective of all business owners. There is a two-pronged approach to achieving that objective—proper pricing and reducing expenses. This article focuses on reducing expenses. My intention is to provide you with food for thought about possible aspects of your business where savings may be realized.
Increase Compensation. To a degree, this is an example of “you get what you pay for.” This particularly holds true for busi- nesses that need skilled laborers. Think about it. If your business has some pipe leakage, would you want a plumbing rm sending only an apprentice plumber who is willing to settle for minimum wage to x the problem? Or would you prefer the rm sends a plumber who has years of experience, possibly a master plumber, for which the fee will be higher?
Over 100 years ago, Henry Ford took this approach to attract the best workers when he doubled his employees’ pay and shortened the workday to the current eight-hour standard. Obvi- ously, I’m not recommending doubling payroll expenses. What I am recommending is that you take a good look at what you are paying your employees, compare that amount to industry stan- dards, determine if the compensation is fair and reasonable and make adjustments that make sense for your business.
Reduce Vendor Costs. The prices your vendors are charging you for their respective products or services may be hurting you... or they may be helping you. It all depends on the level of your proactive management of those supplier relationships.
Regardless of your relationship length with key vendors, every few years it’s always helpful to secure three to ve b different suppliers. Comparing those bids will let you know if your current suppliers have been taking you for granted or have been treating you fairly.
Another approach to reducing the cost of raw materials (if ap- plicable), general supplies and even your medical insurance cover- age is to join a purchasing consortium either through an industry association or a business association like the Small Business Association of Michigan (SBAM). With that said, it is worth giving the coverage available through SBAM a second look.
Develop Operational Ef ciencies
Production. At some point in time, every company with line production (for either short or long product life cycle items) has experienced a costly bottleneck. A mismanaged or unmanaged bottleneck can lead to frustrated employees, higher per-unit
production costs due to lower overall productivity, angry custom- ers (who start doing business with a competitor), lower revenues, suppressed cash ow...you get the idea.
What should you do? First, determine where the bottleneck actually exists, not necessarily where you think it exists. For example, a machine operator may be blamed for being slow. The reality may be that there is nothing wrong with the operator. The reality is that the 30-year old machine is operating at maximum capacity and needs to be replaced with a newer, higher capacity and more ef cient model.
Administrative. Does your of ce staff need to crank the phone before they can make a call? If so, it might be time to get a new phone system. Although the administrative part of your business is probably not that much out of date, sit back and think about the administrative techniques and procedures you have been using for the last 10 or 20 years. Yes, the job may be getting done. But how much faster could it be done?
The value of updating recently occurred at a mid-Michigan business. A highly capable and very knowledgeable key staff member retired after 20 years of service. Upon assuming the position, the new employee took stock of historical procedures, software programs and general overall approach. That individual’s fresh, common sense perspective led to researching new software options (then selecting the best tting program), modernizing and simplifying processes and using a laser-focused diligence to task completion. The end result? Roughly 1,700 work hours have been saved in the rst year!
Use Marketing Dollars Wisely. Are you using some form of advertising and/or public relations to attract new customers/ clients? If so, how are you measuring those efforts’ Return on Investment (ROI)? What types of ads are you running? In what media are they placed? Do you sell your products and services to consumers or to other businesses? Can you quickly describe your ideal customer/client? What is your trade area?
Precise, introspective answers to these questions, mixed with a good dose of common sense, will provide insights that help optimize the effectiveness of each marketing dollar spent. For example, assume your trade area is composed of all signi cant population centers south of the Mackinac Bridge. A well-planned (and properly nanced) expansive TV ad campaign may make sense. Conversely, if your trade area is six counties, then a vetted direct mail campaign and local publication ads may be the most cost-effective approach.
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May/June 2018
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