Is your business leaking money?

There are two basic ways to keep your money box full: 1. Make more money, 2. Spend less money. I’ve always thought maximising your income through professional development and better business operations is the best way to go, but losing site of costs can be, well, costly.

I was talking to a business consultant the other day whose client was a retailer and distributor. They purchased products in bulk and then sold them direct to businesses. While volumes and revenues were high, pricing was extremely competitive and margins very tight.

The consultant found that, when everything was accounted for, if the owners pocketed three percent for themselves they were wealthy. But if they were down by a few percent then they were losing money fast. It was a tiny margin of error between boom and bust, and controlling costs was critical.

The point being that in any business tiny percentages can make the difference between Easy Street and Struggle Street. As a sports coach of mine used to say “look after the one percenters and the result will look after itself.”

But there’s a reason budgeting and cost management is often overlooked. Because it’s boring… at least for me.

Who wants to sift through various telecommunications plans or bundled options? Or analyse, compare and negotiate on quotes from multiple suppliers? Who wants to spend time assessing the options available for leasing equipment or what’s involved in switching to internet telephony (VoIP, Skype etc)? What about exploring the fascinating complexities of tax effective accounting?

While putting together a smart, tight and comprehensive cost reduction plan might ‘cost’ a few days in lost income, if it could add five percent to your bottom line year after year, it’s a safe bet that it would be an extremely profitable use of your time.

Unfortunately, while I’m sure there’s money leaking out, I fear a serious reassessment of all my business costs may remain firmly in my too hard basket for a while yet!

What do you think? Is penny pinching worth the time? Do you have any sure-fire tips for trimming business costs? Share your knowledge.

Peter Crocker is a director of Flying Solo responsible for the areas of marketing and advertising. He is a business copywriter specialising in websites, videos and marketing communications.

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The one suggestion that seems to resonate for most of my clients is - must you make that mobile call right now, or can you make it when you get back to the office. And then there is the perennial "do I really really need to buy this thing, and do I need to buy it right now". Oh, and since it's nearly tax time, spending just to save tax is a dumb idea. Denise Maffey CA from Kumeu NZ
There is no option. No profit you're out on the street.
Find quick and simple ways to do it. Most of the savings are from simple and big ideas. Make your own lunch and you can easily save $50 a week. Evan Hadkins from Sydney, Australia
I think "penny pinching" is a waste of time - when you are saving just pennies. The key question is what is the best use of your time - finding where to cut costs or increasing sales. And I only agree with cutting costs where it does not impact your ability to grow sales. But I see cost cutting and budgeting as two different processes. Budget setting AND reviewing is a vital management process that should be in place no matter what size the business. If it is a small business, make the process quick and simple. The bigger the business the more important the process is a rigrous way of making sure you are getting value. Cost cutting is something that should be done using the pareto rule: what 20% of cost cutting effort will give me 80% of the result. Then move onto increasing sales. Mike Williams - Maxell Consulting from Melbourne
As far as costs go - there are companies who will analyse your bills for FREE and then make recommendations for you on the best options ... one I know of is Imagine Essential Services. I'm sure there are others too. They get a residual income from the suppliers for signing you up, plus you get access to their purchasing power of 50,000 + members. LOL - I'm not associated with them ... I just think it's a great service! But yes, Peter, I agree - I'm a writer. I like words. Numbers and I don't get along ... I can think of nothing more BORING than doing budgets and tax ... I keep looking for an accountant to barter with ... write articles / books for them in return for financial work ... but I haven't managed to find anyone open to that! The search continues ... Leela www.leelacosgrove.com Leela Cosgrove from Sydney, Australia
Why do something you don't enjoy? Yes every business needs to manage their costs but that doesn't mean you need to penny pinch.
I suggest investing in a professional who enjoys analysing your business to find where the money is leaking and which areas are most profitable. The outcome may surprise you.
A professional analyst is not necessarily a number cruncher as a great number cruncher is often too detail oriented while an analyst is strategy oriented. An analyst will focus on growing your business through both revenue and profit growth. Jody from www.boutiquemoney.com.au from Brisbane
Ha! When did I become Leela+Cosgrove? That's awesome! Like a wedding I went to recently where my name was spelled le-la ... I was like ... dude ... I would probably keep the double e, but hyphened first names rock ... Lee-la www.leelacosgrove.com Leela Cosgrove from Sydney, Australia

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