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Profitability Matters, but Not To Everyone

BRAIN FOR FOOD FOR BUSINESS OWNERS

Posted: June 9, 2014 3:51 p.m.
Updated: June 9, 2014 3:51 p.m.

 

The bottom line, the profitability of a company, should matter to every employee but many owners tend to keep this information private. Owners then complain when profits are thin.

When managers and employees are kept in the dark about company finances all the potential help that they could provide to reduce costs, eliminate waste and become more productive is lost.

This serves to reinforce the belief that employees on the payroll are simply expenses waiting to be cut from the profit and loss statement.

This is no way to gain loyalty, increase commitment or improve productivity. It is an excellent way to decrease engagement and have people start looking for a job somewhere else.

In business, pennies quickly add up to dollars. In a sixty-person company, if each employee could reduce spending by $10 per week the savings would be over $30,000 a year. Those dollars become profits.

But the typical business owner doesn’t get into the specifics with employees about company finances. The generic “we need to cut costs” theme is now viewed with skepticism by employees who have been through layoffs, no raises, rising healthcare costs and increased cost of living outside of work.

An early mentor proved the results of his philosophy about watching the pennies that employees spend. He was unique in that he shared the financial information with his team so everyone could understand his thinking and the financial results that were generated as a consequence.

Running one of the smallest divisions at Nestle “Wild Bill” Sweeney scrutinized the expenditures impacting his income statement. He watched his balance sheet as well, continually questioning inventory levels of packaging and finished goods. 

His system worked: Sweeney’s division was, year after year, the most profitable division in the corporation.

Left unchecked and unmonitored, every employee has the capability of spending more of the company’s money than might be prudent.

As one of my clients told his Advisory Board, “Every employee believes they have a license to spend money, especially if it is the company’s.”

This happens because owners don’t take the time to educate their employees about how a company operates financially. 

When a check arrives in the mail from a client, employees may assume that all those dollars are going to end up in the owner’s personal checking account.

To effectively reduce spending, increase engagement and productivity, employees need to be educated as to how the company makes money, how and where the company desires to spend money to grow and, most importantly, how each employee can contribute do both on a daily basis.

I’d like to share some potential cost savings thoughts that can be implemented quickly.

According to research provided by Alliance Cost Containment, an average company spends at least 20 percent more on procured goods and services than necessary.

This includes office supplies, janitorial services and supplies, fuel, travel costs (hotel, airfare, car rentals), document imaging, insurance of all types, utilities, printing, shipping expenses, telephone and communications charges, computer supplies, pest control, temp services, uniforms, furniture and payroll services.  

The average company spends 3 to 5 percent of their total revenue on document imaging, which includes copying, printing and faxing. Personal use of the printers and copiers can account for a majority of paper and ink use. Color copying runs several times the cost of black and white. Having the default setting on every copier to black and white will begin saving money immediately.

There are few areas in which to save $1 million, but there are a million areas in which to save $1.

If you are the only one in your company working to save money, look around you and count all those that could be helping you but aren’t. You really have no one but yourself to blame.

Ken Keller facilitates The Wise Owners Advisory Boards, bringing business owners together for education, sharing and on-going success. Contact him at KenKeller@SBCglobal.net. Keller’s column reflects his own views and not necessarily those of The Signal.

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