People Expense or Asset?

The mantra of Profit Improvement is: “You cannot cut your way to long term success.” Reference: Achieving World-Class Profit Improvement.

You must engage and empower your people to have any chance of success. Engage them with leadership and empower them with training.

Do you look at your payroll and think “expense” or “asset?”

When the pressure is on to increase profits it can be very challenging to answer this question properly. The right answers can be vital to success or, in some cases, survival.

The reality is that people cost money but without their productive efforts most businesses will fail. You have two questions you can ask when you look at payroll:

  1. How can I cut payroll costs?  This is the “expense” question that infers that payroll is a burden.
  2. How can I increase revenues and profit from my existing payroll?  This is the “asset” question that infers that payroll is a source of revenues.

Best practices asks both of these questions but asks #2 first. It is incumbent upon management to maximize the revenue generating capability of their staff before resorting to cutting head count.

The mantra of Profit Improvement is: “You cannot cut your way to long term success.”  Reference: Achieving World-Class Profit Improvement.

You must engage and empower your people to have any chance of success. Engage them with leadership and empower them with training.

What’s it worth?  It’s worth everything.

Paper Losses

A typical office may have anywhere from 4 to 20 different types and brands of paper in its inventory at any one time. This may not seem to be a significant issue but paper costs anywhere from $0.006 (low-end standard copy paper) to $1.00 (fancy letterhead) or more per sheet when all costs are included.

An analysis for one organization found that the lack of standardized purchasing allowed them to spend about $85,000 each year in extra costs just for copy paper. We conducted the analysis in this manner:

-Examine purchasing invoices for copy paper

-Tabulate the costs paid for each quantity

-Calculate the savings possible if the lowest cost supplier had been used

The recommendations were to centralize purchasing decisions and to communicate standardized purchasing procedures to those people who managed the paper inventories at dispersed locations.

The analysis did not determine how much could have been saved if less paper had been used but the qualitative judgment was that the savings could have exceeded the purchasing savings.

Paper losses like these are an indicator of even deeper loss of control over expenses.

Seven Hidden Costs

Are you paying for these seven hidden costs? Do you want to save money? One recent study showed that about 30% of credit card holders pay $100 or more in hidden costs each year and 10% pay more than $500.

If you take the time to look over your personal credit card statements and regular bills it is quite likely that you will find one or more hidden costs. If you challenge your budget managers and accounts payable teams to do the same with your business bills, you will find even more.

Here are 7 common hidden costs and what to do to eliminate them:
  1. Fees for services you no longer need. Replace that rented modem with your own and get a 6-12 month cash payback.
  2. Renewal fees you never wanted. Many trial offers and “free” online deals come with very fine print commitments to renew automatically. If you had to give a credit card number for that “free” offer, assume that there will be a charge next month. Find them on your bills and cancel them.
  3. Hidden fees are common on phone, utility and other bills. Contact the vendor and challenge your bill.
  4. Phony bills are more common in business than in personal life. Cheaters count on our accounts payable personnel paying bills that look legitimate. Directory advertising is a common subject for phony invoices. Make sure everyone reads the fine print and that people who know what they are doing review the bills.
  5. Unwanted subscriptions. Publishers count on your automatic renewal and some send invoices years in advance of expiration. Check the expiration date before paying any invoices. Cancel those you do not want.
  6. Sneaky surcharges. You may have negotiated a fixed price but you must check the invoices to see if the provider has added a surcharge without informing you. Challenge unapproved surcharges and renegotiate or rebid as appropriate.
  7. Unused services. Phone companies and others such as software vendors who charge by the line or seat count on you not checking to see how many you actually need. Do an inventory and eliminate the excess. One client cut over $100,000 per year from their IT budget with this simple action.

Even scrupulous companies count on busy managers to miss these details and pay more. Now that you are alert you can save yourself and your business hundreds to tens of thousands of dollars every year.