Are all the expenses you’re “used to” carrying still pulling their weight?
Getting a better handle on this means you need to dedicate yourself to getting Financial Power in place, and that means you:
- Have the ability to generate your correct selling price and the ability to define how each person affects the financial success of your company.
- Are able to share with your people why the pricing is right by sharing all the costs it takes to be in business that they (and probably you) didn’t account for.
- Decide what numbers need to be collected and trained on.
- Address accounts receivable, accounts payable, and the credit department daily, weekly, monthly, quarterly, and annually so you always know where you stand on a financial basis vs. waiting for reports from your accounting team.
Note: There’s a lot more to true Financial Power, but I’m going to zero in on the expense side of the ledger with the understanding that the other side of the ledger is sales. Sales fixes a lot of things, and it gives you more options for sure.
Where should you start when it comes to cutting the right expenses in the right way?
Start by looking at all your expenses from the prior year listed in your Profit and Loss Statement (aka P&L). Take out a yellow legal pad if you want a manual moment or open up a Word document and list them all. Then, sort that list into must expenses and nice-to-have expenses.
It’ll be tough to do this because everything you now spend money on seemed like a good idea at the time. But a sinister thing about some expenses is they may be small expenses, but if they’re occurring every month, for instance, there is a compounding effect, and not in a good way. The reality is all these “small” recurring expenses add up. It’s like a $10 a day Starbucks habit. It doesn’t seem like a big thing, that is until you look at your credit card statement.
Hey, who has the bare minimum when it comes to internet speed and TV packages or even streaming packages?
Here are two of the five most common areas to look at when it comes to cutting expenses:
1) Labor ratio is out of whack with too many inside people vs. people who are on the outside turning the screwdrivers and the wrenches since these are the only people that make your company money.
Staffing Ratios are your friend, and the goal is to get to where there is a 2:1 ratio. That means for every two trucks out there making you money, there is one person who doesn’t do the work at your company. It’s typically a highly profitable place to be. Know that you can still do well at 1.5:1, which means if you had 15 trucks rolling every day, you could have 10 people not doing the hands-on work.
Examine where work is unnecessarily redundant on the inside and address it. But know you may have to let some people go on the inside to get back into balance. A better longer-term goal is to grow the number of people who work on the outside and make you money. This will mean also growing the number of calls so they can stay busy.
2) Truck maintenance costs that are getting out of hand with trucks that are pushed too far. Every time a truck is out of commission and calls can’t be run, that means money is lost, and the cost to repair trucks with too much age and mileage is actually expenses that would be better off being replaced by shopping for newer trucks or, better yet, leasing them. Usually, if you track it, you’ll see it goes up the “hockey stick” as a truck ages when it comes to ever rising repair costs and down time.
This is best handled by starting with a truck-by-truck assessment to ascertain what’s nearing its end-of-life cycle and if it can be sold off which frees you up to either buy a new truck or switch to a better leasing option.
Look for Part 2 where I’ll share the rest of the 5 most common areas to look to cut expenses the right way. Here’s a tease… they are Inventory, Overtime, and Marketing expenses.
(Need guidance on the right places to invest money in your business? Read my blog Stepping Over Dollars to Pick Up Dimes.)