The holidays are over, and you are facing a new calendar and a tough economy. When money is tight and the market is down, it’s time to look for waste. When you start a business, you are conscious of every purchase and monitor cash flow. As you grow, you hire other people to process and control the invoicing, ordering, collections and payments. There is no time to analyze where each penny goes, but the old adage still applies—watch the pennies and the dollars will take care of themselves.
Start with overhead because it grows in chunks, while direct expenses are incurred gradually with each project. When your overhead capacity is reached, you must invest in a new person, a new building or a new vehicle. When revenue plateaus or shrinks, overhead reduction also occurs in painful chunks, such as the need to lay off an employee. Look for small things first, and ask employees to help. Then share some of your savings with them.
Adjust thermostats and window coverings with the seasons, and dress accordingly. Short sleeves in winter equal wasted dollars. Don’t light empty rooms. Shut down computers when you leave. Buy generic supplies, and print only when absolutely necessary.
Many reports are distributed out of habit and waste ink, paper and time. Report only variances and problems, and use e-mail and electronic records to reduce meetings and verbal exchanges. Phone calls and meetings waste time and require additional documentation of actions and discussions. Train employees (and yourself) to choose the most efficient way to exchange information. Then get to the point quickly, seek agreement and move on.
Hold meetings standing up, and only when you need to solve a problem or deliver information immediately and in person. Never keep your employees waiting, or you are wasting your own money. Consider the actual cost of time when you keep 15 employees cooling their heels for 10 minutes. That’s 2½ labor hours at their average compensation rate.
Look at the physical work space. Evaluate how much time employees spend at their desk or outside the office. Can they combine telecommuting with split shifts and share desks and computers? They will appreciate the reduction in travel time and hone their cooperation skills.
Cash vs. comfort
Now, consider the effect of timing on purchases. The quantity you buy affects price, and availability affects timing. How much do you need to stockpile to ensure you have it readily available or can benefit from lower pricing? If you buy six months of product instead of three, will the price reduction offset what the extra cash would have earned in an interest-bearing account during the extra months?
The price advantage of buying in bulk, and the convenience of having it when you need it (plus the reduction in time when you process fewer orders), must be weighed against the cost of space to store the additional product, plus the lost opportunity to maximize the return on the extra cash you spent, or another opportunity to spend that cash on something else. However, if the product has a long lead time or limited availability, you have potentially avoided a last minute purchase at a higher price with a hefty overnight delivery charge.
If your employees use company vehicles and tools outside of work hours, you are not only paying for additional fuel and maintenance, as well as earlier replacement of those investments, but you are incurring liability for problems on side jobs performed with that property. Be clear about the costs of those risks. Such perks are a luxury, not an entitlement.
Sending people to conferences or training seminars is a great idea, as long as they are held accountable for acquiring and applying what they learn, either by teaching new skills and methods to colleagues or by demonstrating improved performance. You deserve a return on your investment, so substitute online training or local workshops to reduce expenses when possible.
Convenience and float
If you get your accounts receivable payments through electronic funds transfer, then you have all but eliminated the float on incoming cash. If not, send someone to pick up your payments. Saving one or two days of transit time on each payment makes a sizeable difference in annual cash flow. Get the money into interest-bearing accounts quickly.
Your collection cycle is undoubtedly longer than your payment cycle, so you finance customer projects. Finesse the timing by ordering as late as possible from reliable suppliers, then pushing your monthly payment processing back just two or three days. It’s an easy way to improve your cash flow by reducing the gap between collection and payment cycles, without harming your credit.
Now, look for ways in which you are wasting money. Sending your assistant to pick up your lunch costs your company more than the delivery charge and tip, and you can keep your car for another year. Now, hang up the phone, shut down your computer, and turn off the lights when you leave. Then watch your pennies become dollars.
NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at email@example.com.