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Overhead Lessons That Will Have Your Business Thriving

Dogoingoutofbusinessn’t Kill Your Business With Creeping Costs

It’s a fact that 96 percent of businesses fail within 10 years, according to Forbes Magazine. Over the past two decades, I have studied small businesses looking for the patterns to determine why those that fail do fail and why those that survive do survive.

It is clear to me that due to a lack of  understanding about profit and expanding overhead small businesses often go under.  I find that most small business owners don’t understand the overhead definition and don’t know how to measure and control manufacturing overhead, overhead costs and they lack the information and knowledge of their predetermined overhead rate.

This article will give you an education that will help assure your business can pay your bills and is going to make it past the 10-year mark.

Show Me the Money

Most businesses fail because they are underfunded.  There are bills to pay and they money rolldon’t have enough money to pay their bills.  The business owner had a passion for sharing their products or services and didn’t have a clue how to be a business owner. Owners are often financially illiterate. I was definitely financially illiterate when I started out in my first business about 30 years ago.  The fact is, if you don’t have cash in your business, then you have no business.  I am not talking about a spreadsheet showing profits – I am talking about actual cash.

The businesses that thrive for decades have cash.  They control their cash and manage their cash carefully.  They focus on managing their cash and know how to cut expenses.  Just the other day, I mentored a small company to cut their expenses by only 10%.  Then I showed them how their bottom line was going to increase by close to 50% by just taking this one key action.

Where business owners go wrong and why they go out of business is they focus on top-line revenue and how to grow revenues.  Pretty soon, they aren’t looking at expenses and those expenses are growing.  When I show a client how to cut out only 10% of expenses things open up.  There are probably a lot of expenses you, like my clients, have that you don’t need.


Stop Throwing Money Down The Drain

Here is an action plan to be certain you can cut expenses by at least 10% in the next 30 days.

  1. Sign all checks – before you sign a check, ask yourself, “is this contributing to a return on investment?”.  If no, end that expense.
  2. Look at the last 3 months of credit card bills again asking if each charge contributes to your ROI – if no – end those expenses now.

You are going to notice a lot of expenses that you can eliminate in your business. When you eliminate these unnecessary expenses, you will have cut your costs and cash will be going rigmoneydownthedrainht into your bottom line with more cash actually being kept.

Because I want you to thrive, not just survive, I want to have you take some further actions. Let’s make sure the financial health of your business is great long-term.  I recommend you find some system to measure Key Performance Indicators to show you very simply each month what is going out and what is coming in.  I started to do this with a very simple green (positive income), red (negative income) system years ago.  Each week I can see what is happening financially in my business and make educated decisions to keep more cash.

What is so exciting about tracking your financials weekly is that you will see that if you just adjust the cost of doing business you don’t always have to focus on chasing more customers.  In fact, by focusing on serving your current customers even better while cutting out expenses you will dramatically reduce your overhead.


Low Overhead Saves The Day – And Your Business

expensesExpenses seem to pile up in business.  They grow slowly and aren’t noticed and then one day you are cash poor and realize your costs have been out of control. This is called cost-creep.  Cost-creep is responsible for many businesses dying.

The good news is that low overhead can actually save you and be one of your strongest assets.  While you were busy adding small costs to your business, chances are you were not focused on costs.  Now that you are reading this article and doing the activity I gave you, you can eliminate your business costs and have cash back in your business.

I want you to look at everything you spend money on with fresh eyes.  For example:

Your office space – can you downsize or move to a different location?

Can you decrease inventory?

Can you cut your energy bills?

Do you have too much insurance or insurance you don’t want or need?

Do you have too many people working or working too many hours?

Can you cut out or down on technology and communication costs?

Can you eliminate dues, memberships, association fees?

What automatic renewals can you stop?

How can you ship more cheaply?

How can you purchase at a discount?

By doing the exercise above, answering these questions honestly, and focusing on Key Performance Indicators related to costs, you can dramatically improve your businesses cash in 30 days.

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