Examining expenses to increase the bottom line

Today, we are to gather twenty dealers for a group discussion. The topic for today is increasing profitability. As we go around the group and ask for input, we will most likely hear two traditional suggestions; increase sales and increase margins. And while, they would both work, they are two of the hardest ways to increase profits.

Let's take a look at 10 other possible ways to increase the overall profitability of your business. And as you go through this exercise, may we suggest you cut out this article, hang it on the wall to remind yourself to repeat it at least once in the next twelve months.

#1. Examine your schedule for employees. Outside of the cost of inventory, wages are the largest expense your business has. After all, this is a labor intensive industry. If you have the data to review your sales history, you should see a pattern by day and month indicating when you need your sales and shop help. If your sales are seasonal, you are probably hiring part time help or constantly trying to find things to keep people busy. Consider finding additional products and services to offer which will fill in the lull time.

#2. While you are reviewing payroll, ask your workman's compensation insurance sales rep to help you review how you have categorized your employees. You may find you have employees in higher risk categories than necessary.

#3. Advertising. If you consider advertising a necessary expense as compared to it being a method of drawing customers, you are probably wasting money.

Your advertising should be calculated as a percentage of monthly or annual sales. Of this figure, you should set aside approximately 10% for last minute opportunities and advertising expenses that are over budget. If you are using television, newspaper, or radio, you will often get a better rate by making an annual commitment as compared to simply buying advertising time or space when the sales rep calls on you.

#4. Insurance. In addition to the worker's compensation already covered, you should put your insurance coverage out for bid at least biannually to make sure the price you are paying is in line. As you visit with prospective agents, ask them where you can save money. Many policies allow seasonal fluctuations of up to 25%. If this is the case for yours, you can consider calculating your highest inventory level, subtract 25%, and buy inventory coverage for this amount. If your business is renting space, make sure you are not buying coverage for something that the landlord owns. See if you have coverage for loss of sales, computer hardware and software loss, and employee wages coverage. As you examine these with the agent, you should consider these coverages on an item-by-item basis.

#5. Review your utilities expenses. Your cooling and heating systems have filters which should be checked, and replaced if necessary, each month. Each of these systems should have at least an annual checkup to make sure they are operating at peak efficiency. You should also shop your long distance service. With consumer rates now as low as five cents per minute, commercial rates cannot be far behind. Check your water usage by making sure all faucets and toilets are functioning properly. In many communities, your sewer disposal rate is tied to water usage, so if you are inefficient with water, you are paying twice.

Also check with your garbage disposal company. Some dealers have reported savings on this bill, just by deciding to recycle the large amounts of cardboard and paper they use.

#6. Are you utilizing your bank? If all you do with a bank is write checks, and deposit funds, then you should consider moving your business to other banks. Granted a knowledgeable bank officer can be an asset to your business. If this service is not offered, or you are not utilizing the service, you should consider doing business where it will cost less. One dealer reported saving over $100 each month by changing banks when he took copies of his last three statements to other banks and asked what their fees would be.

#7. Outside services is a category that is often a catchall for the miscellaneous expenses of business. However, an annual review of what you are categorizing as outside services is a mandatory step in keeping expenses controlled. You may also find certain tasks you or an employee are doing, such as payroll, could be better or less expensively done by an outside service.

#8. Accounting and legal expenses are usually grouped together. While hopefully, you have a minimum amount of legal expense, the accounting service is always suspect. Review what you are getting from your accountant each month, and then ask several other dealers what they are spending for these services. Too often a dealer pays an accountant several hundred dollars each month for a financial statement that the dealer does not fully understand, and does not use to make decisions. This is a situation where the dealer should be gaining knowledge from the accountant. If the accountant is not providing this information, it may be time to look for a replacement.

#9. Supplies, as a category, usually contain all of the paper goods used in operating a business. The first place to reexamine supply expenses is the various places you buy forms. Anyone who has ever ordered a printed form has found out the difference in price between one thousand copies, and five thousand copies is minimal. The expense watching business will calculate the number of forms used within a year, and order quantities which will not only cut down the frequency of ordering, but save valuable dollars for the business. If there are various forms used within the business, try to negotiate a price for the entire order, or stagger the need to order various forms throughout the year so as to prevent your creating a cashflow crunch.

#10. Repairs and maintenance are often hard to control. After all, if something breaks, you must have it fixed. However, many companies offer service contracts, which can work to your advantage. An example is one of the major time clock manufacturers. The cost of one of their service calls is about 70% of the cost of an annual maintenance contract. You may also be able to negotiate a maintenance contract for your heating, cooling, delivery vehicles, computer system, and other equipment. On the other hand, if a piece of equipment rarely has a problem, you may want to consider canceling a maintenance contract and paying for repairs as necessary.

Cutting expenses is not a cure all for a business. It takes a joint effort of increased sales, working to improve margins, and cutting expenses to maximize a business. However, as the old adage says, "If you don't spend it, you don't have to sell something to cover the expense.