Practicle Solutions Part 3

by

Rick & Susan Amato

We have learned that most successful businesses that managing expenses does not require a degree in accounting. All you need to be successful is leadership, business judgment, and the willingness to focus on maximizing profits. The owners of highly profitable businesses effectively maximize profits by asking the right questions, demanding the right information, and putting some simple profit-maximizing systems in place.

Here are a few actions you can take to maximize your profits:

Cut expense

1.Know your strategic costs. The things that make you or save you the most money – and try to aggressively cut everything else. Unless something is directly linked to product quality, excellent customer service, profitable new sales, or a feature or service that gives you a defined competitive edge – it is overhead.

2.Never let expenses become routine. Periodically dive into non-strategic costs looking for savings. Search a couple of non-strategic expense accounts each month for expenses that can be removed or slashed. Go in assuming you are spending too much.

3.Put all your costs up for grabs. You will find a number of expense control opportunities if you assume all costs are not necessary until proven otherwise and use your judgment. According to a study of the 80 most productive companies in the world in the book Less is More by Jason Jennings, profit-oriented executives ask one simple question before they make any decision: what’s the good business reason to do this?

Budget expense

4.Start your budgets with zero. Zero budget every year. A back-of-the-envelope budget built from the ground up beats a detailed budget based on last year’s expenses, excesses, and faulty assumptions.

5.Create a monthly budget and stick to it. If you don’t have time to write your business plan, at least commit the economic hopes and limits into a budget. It will be good discipline for you and clear communication of your expectations to your team.

Benchmark expense – any cost that is not out for bid is wasted opportunity.

6.Put costs out to bid (unless you don’t mind over-paying by 30-100%)

7.Ask your peers where you can find a better deal. If they can’t buy your product or help you find customers, they can often help you shop. Find out who your competitors buy from and what they pay (and gain additional competitive insights).

Put systems in place to control expenses

8.Set approved levels by expense category and employee. Put Automate limits with corporate credit cards that are now very sophisticated in helping implement expense control policies by employee.

9.Set the authority to approve all expenditures and restrict others by using automated entitlements, authorization, and spending limits, particularly for strategic or high-value expense categories.

Watch expense – put simple tracking mechanisms in place to monitor expenses monthly and directly and measure three key financial metrics.

10.Flash report – measure three key financial measures of your business’s health – cash, profits, and net worth and watch them monthly, weekly, and even daily.

11.Turn your accountant into a “virtual CFO” who can generate the regular cash flow, expense budget, and profitability reports you need to manage profits – on demand and without visiting your offices.

12.Use all the tools – between online banking, bill pay, direct deposit, payroll, and online cash management systems, you can get great visibility – as well as a range of alerts and reminders – on all the cash-consuming transactions in your business that you can manage to generate tomorrow’s profits.

Ten Financial Measures You Should Spend ten Minutes Tracking Weekly:

1.Cash balances

2.Receivable balances

3.Payables balances

4.Receivables aging

5.Line of Credit balances

6.Line of Credit availabilities

7.Customers who are most significantly past due

8.Monthly expenses

9.Monthly profits

10.Current retained earnings

Wealth Builders who keep an eagle eye on the money:

“Produce and review financials monthly

“Organize financials around revenue, cost of goods sold, general administration / overhead and net profit

“Dissect revenue streams using separate profit centers within the business for the purpose of pinpointing opportunities and threats

“Use financial statements to track money trends using monthly, quarterly and annual comparatives

“Work with an external board of advisors who understand and focus on company financials

“Are your eyes on the money? If not, how can you be sure that you’re making any?”

Resources to Help You Monitor and Control Expenses

“Lifeblood: How Successful Business Owners Achieve Wealth – Smart Money Rule #2 Eyes On The Money, by Sam Frowine

Resources to Help You Budget and Manage Down Expenses

“Double Your Profits in Six Months or Less: 78 Ways to Cut Costs, Increase Sales and Dramatically Improve Your Bottom Line, by Bob Fifer (Harper Business, 1994)

“Less is More: How Great Companies Use Productivity as a Competitive Tool in Business, by Jason Jennings (Penguin Books, 2002)

“The Goal: A Process of Ongoing Improvement, by Eliyahu M. Goldratt (North River Press, 1992)

Rick and Susan are successful entrepreneurs dedicated to the success of others to improve the quality of life. To find out more about these authors, go to www.rsamato.com or http://www.time4wealth.com

Article Source:

ArticleRich.com