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 Managing
The Expense Detail
Do
you want to reduce your G&A expenses? Maximize your profits? Run
an efficient organization? The key to this rests in the effective
management of your company’s expense detail. In difficult economic
times, companies focus on stabilizing revenue and gross profit,
with some attention to expenses. Unfortunately, many of these
companies don’t have a well prepared, detailed business plan with
which to help them effectively manage their expenses, so they are
not well armed with the details needed to have the proper effect.
Even in good times there is a tendency to look at the top line and
bottom line, and if both numbers meet expectations, everyone pats
themselves on the back for a job well done and believes that there
is no need to look into the expense detail. Most times, by not
paying attention to the expense detail, companies are leaving
money on the table.
The best way to effectively manage and control your expenses is to
begin with a detailed business plan. Why is this necessary? Simply
stated, if you focus on assembling a detailed business plan, it
requires you to compile and examine historical trends within the
expense details. This analysis not only allows you the opportunity
to discuss as a team where there may be opportunities to cut
expenses, but it also gives you the information necessary to
properly forecast expenses for the upcoming year. It then serves
as a guide and also your report card as to how effectively you
manage your expenses. Significant variations to budgeted amounts
can be investigated and acted on. Without the business plan as a
guide, you are proceeding blindly.
Once you have this information assembled, it is the opportune time
to examine contracts with vendors, renegotiate them when they
expire, or take competitive bids when necessary. This in itself
can be an eye opening experience. Companies that have been loyal
to a particular vendor for years and years can find significant
savings when shopping around amongst the competition. Think about
it: How many of your current vendors just put an annual increase
on the amounts that they are charging you? If you shop around you
may find that the vendor has priced themselves out of current
market rate. One area that can pay big dividends is telephone
expenses. Do you have lines coming into your building that you are
paying for but are underused? A phone study can help you determine
that.
At this point of your business plan you have compiled the
information, renegotiated contracts where necessary, eliminated
some unnecessary expenditures and have spread the detail of your
go-forward expenses monthly for the upcoming year. Now begins the
difficult task of managing and controlling. For this to be
effective, everyone in the company who is authorized to approve
expenditures needs to be on board. They should have a copy of the
expense plan with the understanding that each line item has a
committed annual maximum that they need to manage to. This is
sometimes the most difficult part— getting managers to work within
a budget as opposed to approving expenditures without
understanding the impact. Take for example office supplies. Assume
you have budgeted $ 6,000 for the year in this area and after 6
months, you have already spent $ 4,500. You and your team have to
spread the remaining $ 1,500 over the next six months. This would
require strict controls and adherence to the plan for those six
months. If that can’t be done, you would then need to be under
budget in another expense area in order to make up the difference.
If you apply a diligent review to each expense area on a monthly
basis, it is very easy to control. Unfortunately, we find that
companies don’t react to an expense issue until it is too late.
That details the best way to manage the general line expenses;
however, we all know that typically the biggest expense in most
organizations is people. This is an area that is very often
overlooked, or in some cases handled in a very haphazard way. For
example, a company may look at their revenue and gross profit
projections and just make a determination that they need to reduce
headcount by four people. There is no rhyme or reason, just the
fact that reducing four people will take out perhaps $ 150,000 in
expenses. They haven’t taken the time to understand if the
workload can be accomplished with that size of a reduction in
staff. Perhaps it can, perhaps it can’t. The point is that nobody
knows. If a proper staffing review was done, we would be able to
determine what size reduction is appropriate.
Any staffing reduction needs to be accompanied by workload
redistribution and the only way to do that effectively is to do a
complete review of the processes that are currently employed in
all areas. You need to determine if you are employing the best
technology and are utilizing it properly. Beyond that, you can
design processes that properly distribute the workload. This is
not always an easy task and most times is best accomplished with
the assistance of an outside party. Too many times, people within
the organization have an ownership of the existing processes and
are reluctant to change. An outside consultant can help design the
most efficient processes in all areas of the business. Once this
is done, it, along with the forecasted volume, will dictate the
people requirements needed. This method of assessing your people
needs is effective and accurate. It insures that you process the
workload efficiently with no employee being overburdened.
I can’t stress enough the importance of having a completed
business plan including expense detail in order to effectively
manage and control expenses. Some companies don’t believe in a
detailed business plan; in those cases, they should at least
budget a line item expense detail. Without that, there are no
measuring criteria with which to measure your success.
Jim Boulden is a consultant with Strategy Development, a
management consulting firm for the technology and outsourcing
space specializing in sales effectiveness, MPS, advanced sales
training, operational improvement and performance improvement
strategies (www.strategydevelopment.org). Jim has over 30 years of
industry experience with 25 years in finance and operations. Jim’s
primary role with IKON Office Solutions was as Director of
Financial Operations in both the Boston Marketplace as well as
South Florida. Jim was responsible for cash flow, asset
management, leasing, back office technology, and operational
effectiveness and budgeting. Jim was also the lead on major
account pricing decisions. Jim played a key role in IKON’s process
re-engineering team as IKON progressed to a more centralized
operation for billing, collections and inventory management. Jim
also served on the East Region Operations Team, which was
responsible for assisting underperforming marketplaces improve
their operations.
Jim works with companies to help them implement processes that
streamline their operations, reduce G&A expenses and maximize
their profitability. In addition, Jim works with the other
Strategy Development team members assisting dealers with Business
Planning. Jim can be reached at: boulden@strategydevelopment.org
or 954-796-9302. |
