Finding Profits Through the Back Door
Examining expenses to increase the bottom line

The topic for today is increasing profitability. When we ask retailers for input, we will most likely hear two traditional suggestions: increase sales and increase margins. While true, they are two of the hardest ways to increase profits. Let's take a look at 10 other possible ways to increase the overall profitability of your business.

#1. Examine your employee schedule. After inventory, wages are the largest expense your business has. If you have the data to review your sales history, you should see a pattern by day and month indicating when you need your sales help.

#2. While you are reviewing payroll, ask your workers compensation insurance sales rep to help you review how you have categorized your employees. You may find you have employees in higher-risk categories than necessary.

#3. Advertising. If you consider advertising a necessary expense rather than its being a method of drawing customers, you are probably wasting money.

Your advertising should be calculated as a percentage of monthly or annual sales. Of this figure, you should set aside approximately 10 percent for last-minute opportunities and advertising expenses that are over budget. You will often get a better rate by making an annual commitment rather than simply buying advertising time or space when the sales rep calls on you.

#4. Insurance. You should put your insurance coverage out for bid at least biannually to make sure the price you are paying is in line. As you visit with prospective agents, ask them where you can save money. Many policies allow seasonal fluctuations of up to 25 percent. If this is the case for yours, you can consider calculating your highest inventory level, subtract 25 percent, and buy inventory coverage for this amount. If your business is renting space, make sure you are not buying coverage for something that the landlord owns.

#5. Review your utilities expenses. Your cooling and heating systems have filters which should be checked each month and, if necessary, replaced. These systems should have at least an annual checkup to make sure they are operating at peak efficiency. You should also shop your long-distance service. Check your water usage by making sure all faucets and toilets are functioning properly. In many communities, your sewer disposal rate is tied to water usage, so if you are wasteful with water, you are paying twice.

Check with your garbage disposal company. You may find savings by deciding to recycle the large amounts of cardboard and paper you use.

#6. Are you utilizing your bank? If all you do with a bank is deposit funds and write checks, you should consider doing business where it will cost less. One dealer reported saving over $100 each month by changing banks after he took copies of his recent statements to other banks and asked what their fees would be.

#7. Outside services is a category that is often a catch-all for the miscellaneous expenses of business. However, an annual review of what you are categorizing as outside services is a mandatory step in keeping expenses controlled. You may also find certain tasks you or an employee are doing, such as payroll, could be better or less expensively done by an outside service.

#8. Accounting and legal expenses are usually grouped together. While you hopefully have a minimum amount of legal expense, the accounting service is always suspect. Review what you are getting from your accountant each month and ask other retailers what they are spending for these services. Too often a retailer pays an accountant several hundred dollars each month for a financial statement that he does not fully understand and does not use to make decisions. If the accountant is not helping with this, it may be time to look for a replacement.

#9. As a category, Supplies usually contains all the paper goods used in operating a business. The first place to reexamine supply expenses is the various places you buy forms. Anyone who has ever ordered a printed form has found that the difference in price between 1,000 and 5,000 copies is minimal. The expense-watching business will calculate the number of forms used within a year and order quantities that will not only cut down the frequency of ordering, but also save valuable dollars for the business.

#10. Repairs and maintenance are often hard to control. After all, if something breaks, you must have it fixed. However, many companies offer service contracts, which can work to your advantage. You may be able to negotiate a maintenance contract for your heating, cooling, delivery vehicles, computer system, and other equipment. On the other hand, if a piece of equipment rarely has a problem, you may want to consider canceling a maintenance contract and paying for repairs as necessary.

Cutting expenses is not a cure-all for a business. It takes a joint effort of increased sales, working to improve margins, and cutting expenses to maximize a business. However, as the old adage says, "If you don't spend it, you don't have to sell something to cover the expense."