Some days it may feel like your business is running you. You’re reacting and you’re…
Is Your Business Leaking Profits?
The last thing you want to do is to be working hard only to find that you’re not making the profit you thought you would and not knowing why.
One of the areas where this can arise is paying costs that you don’t need to be paying. Recently, I took a client through this process. Let me tell you about Katie.
Katie runs a consulting business with six staff in a suburban office. There’s always plenty of work to be done, and the team get along well and enjoy working for Katie. Katie’s working long hours, doing her work in the early mornings and the evenings when she’s got the office to herself with no interruptions. From the outside, it looks like Katie has a successful business, but the reality is she’s making less money than she’s paying her team, is falling behind on paying bills and doesn’t understand why she’s not making lots of money.
The quickest way to find whether a business is leaking profits is to have a good hard look at the expenses.
In Katie’s case, it was like opening a can of worms. Each and every expense was scrutinised for whether it was a necessary expense and whether it added any value to the business.
- Katie was hiring plants and paying for them to be watered every fortnight.
She decided that although it was a nice touch in the office, she could eliminate this cost completely. Her thought was that she could buy a few plants at the local nursery and get one of the admin team to water them occasionally and have the same result, saving her $200 per month.
- Next item for review was the subscriptions which included the monthly payments for various online software.
Having extracted the details of every subscription that had been paid over the past twelve months, whether monthly or annual payments, Katie looked horrified by some of the items on the list. You see, she wasn’t using a number of the systems anymore but was still paying for them. She was able to immediately cancel six monthly subscriptions saving a further $300 per month.
Not only that, but she also considered whether she could use alternative systems that were less costly and still get the same result. Over the next couple of months, Katie will be transitioning two systems to less costly options and will save a further $450 per month.
- Next up was a review of the advertising and marketing costs.
Katie, like most entrepreneurs, was regularly trying new options for promoting her business and getting new clients. She had entered into an agreement with a marketing business to further increase her new prospects into the business. The agreement was clear on what the marketing company would do and what the results were expected to be. At the time of the review, Katie had not had any results that were measurable. She had zero new revenue from the marketing efforts of this company. As the initial term of the agreement had expired, Katie was able to terminate the contract saving $2 000 per month.
A review of the photocopier lease revealed that she had to continue with the existing costs for a further period before being able to renegotiate the agreement. On the other hand, she found that she was out of contract on her telephone services and was able to negotiate a better deal giving a saving of $250 per month.
At this point, Katie accumulated savings of $3 200 per month or $38 400 per year. But that wasn’t all we found.
- We also found that she was paying one of her admin team significantly more than she needed to.
Katie could reduce the costs by $2 500 per month if this employee was replaced by someone on a lower salary. Now, this wasn’t going to be a quick solution, nor an easy one to handle and Katie is considering her options and letting this work itself out over time.
When this last piece is resolved, Katie will have saved a total of $5 700 per month or $68 400 per year.
To test out how much your business may be leaking profits, have a good hard look at every payment you make and consider whether you need to be paying them or not. You may be surprised at what you find.
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