|
Article:
Controlling Costs Key to Running a Business by: ARA Content (ARA) - With more and more small businesses and dot.coms going bankrupt these days, businesses are developing new strategies to stay in the game and obtain a profit at the same time. More than ever, not enough emphasis is being placed on controlling costs. 'Increasing sales is overrated. The old adage that volume cures all ills is outdated and moldy,' explains Patrick Bruce, senior business analyst for The Bankcard Store. 'I was brought up under the guidance of independent restaurant owners, whereby the net bottom line profit was all that mattered at the end of the night. It wasn't until I started to work for McDonald's in the 1970s that I was made aware of the need to increase sales each and every year. At McDonald's, marketing was king, and the way you decided whether that marketing was working was to compare year-to-date sales.' When sales are the primary focus, the net bottom line becomes a secondary issue, and that can become very dangerous. Bruce explains that when the focus is on sales, the staff can become complacent and the importance of the little things that rob a business of its net profit's daily can become lost. Some business owners today do not understand how much money they leave on the table each day because they haven't taken the time to put 'profit gauges' in their business. Profit gauges are important because they can tell you at any given moment if the business is running the way you designed. 'It always amazes me,' said Bruce, 'when I visit a client and they have these beautiful cars with high-tech gauges, oil gauges, digital radios and much more. Yet, when I ask them what gauges they use in their business they inevitably answer 'monthly financial statements.' Can you imagine if you only looked at the gauges on your car once a month? Yet most business owners spend more time worrying about their gas mileage than the productivity of their employees!' Financial statements are after the fact and require a certain level of accounting experience and knowledge of tax codes to fully understand their function. Quite often, business owners expect their accountants to show them how to reduce cost and increase net profits. 'They are not trained to do that,' Bruce says. 'They are trained to deal in historical information, not projections. Although they can certainly help in building net profits, they are by no means the answer to controlling cost.' It is the business owner's responsibility to install the proper cost control gauges, and establish a predetermined net profit gauge. But, when a client is asked about the profit gauges he uses on a daily basis, the standard answer is usually 'that's why I have an accountant.' 'Generally,' said Bruce, 'they become interested in profit gauges after they learn how much money they left on the table over the previous six months. Of course, they usually quickly realize that it is not the accountant's job to install cost control gauges.' Here is a simple tool to see how well you and your accountant are controlling net bottom line profits: Gather your last six financial statements and see if there is a 'percentage of total sales' column, or if your numbers are simply shown as dollars. If there is a percentage of a total sales column, remove (or hide) the dollars column and simply show the percentages. If there is not, simply divide each expense item's dollar amount on your income statement by the total sales. This will give you the 'percentage of total sales' for each expense item. By doing this, you are creating the first instrument to 'gauge' the consistency of your operation. For example, when you convert your dollars to percentages each month's total sales always equals 100 percent, so if the rent is $'2
|
