Red Zebra Business Centre -Management Memos
February, 2008. Making Measurably More For Your Business Since 1985!


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Cut Costs

trim your costs.

it really means making every expense item effective!

T he first step in setting up good trading this year, (see December Management Memos) as interest rates continue to rise, the US slides into recession, and China looks to slow its economy, is to trim costs. Make sure all your costs are fully productive. Each cost element should be a clear contributor to making a profit.

The most profitable businesses have a good control over their costs - especially their expense items. But expense control does not mean pointless slashing, probably removing the very factors that make your business great. Look at each and every expense item individually, to see how it is contributing to the money you make.

In short, keep a level of expenses that's appropriate to what you are trying to achieve. For instance, if you're locked in a competitive battle for market share, cutting marketing expenses won't help your current goal. If staff seem flat out all the time, may you should increase staff, rather than reduce the head-count.

A constructive approach is to re-examine every expense item, and everyone's job descriptions. It's amazing how:

  • Jobs expand to fill the available time
  • Work is duplicated because there is a lack of trust somewhere
  • Someone doesn't understand what is expected of them so the job is not completed
  • The work flow has evolved into a less than efficient pattern
  • Things get bought that don't need to be, or
  • The work flow has remained stuck in the past, although things have now changed.

Since wages is always the biggest expense item, it is here that the most beneficial improvements can be found. You'll be amazed at how things get done that don't need to be!

It's very important, at time like this when things can be so uncertain, that you eliminate any expenses that aren't contributing. This can be quite difficult to determine - the usual operating accounts don't even begin to show the full picture. That's why a full and comprehensive analysis is needed - like the Red Zebra BizMap (see a sample). However, just for a 'quickie', look at your reported net profit.

Imagine you have sales of, say, $300,000 a month. Did you pay yourself between $5,500 and $6,000 as a salary  (before tax) in the month, and record an operating profit (before interest, tax, depreciation and amortisation) of $30,000 or more. If you didn't make that much, it's time for a thorough review - before the uncertainties and interest rate rises get worse. For a different size business, adjust your salary accordingly, and ratio the profit up or down to fit. You may not take all that salary according to the tax advice you get from your tax professional, but your business should be making enough to pay you that much.

Make sure you're controlling all your expenses, and putting your resources where the biggest profit result will be found!

If you'd like to find out more, talk to us, or ask us a question here! Remember, there's no charge or obligation, and you get a whole hour's consultation free. This same offer also applies in New Zealand.

New Microsoft Office Suite 2007 has been on the market for a year now. With new generation software about, shouldn't you update? There has been some comment about the new 'ribbon' user interface, but the price has been the big talking point!

At first the price was so high, major 'price-off' programs were needed to get it moving. Even now, it is still costly. Some are buying it, but most pay for it to be installed on a new computer. Do you really need to spend that extra money? One client wanted to replace a whole office full of computers - 10 machines in all. Total software bill - an estimated $10,000. On top of the cost of the computers themselves!

While MS Office 2007 offers a massive range of features, most specialised features are simply not used by any but the most heavy weight user.  Need a "Word" processor and "Excel" worksheets? Perhaps also "Powerpoint" presentations? Does 'free' sound a good price? Today, you can download more than most people will ever need on their office computer, for no cost at all. With the support and backing of a giant like IBM!
IBM Symphony
Habit, and the profit needs of your IT provider, will lead you to simply buy the next generation of software from Microsoft, just like last time. Isn't your hard earned money better in your business, than going to Microsoft? So check EVERY expense. You never know where the next saving's coming from!!!