Business is tough. So you make tough choices all the time. You know many things about keeping the business solvent. Perhaps most important is keeping your expenses down so that overhead does not consume your cash flow.
But a strange thing happens as your business grows. You focus more on what goes out via the financials than on what can go into the operation to increase profit and revenue. Or even maintain them.
You can see that a $1,000 test equipment expenditure immediately decreases your bottom line. You’ve got instant feedback. So it follows that by not spending that $1,000, your bottom line increases.
Hey, where else can you save money? Cut back on training. Stop providing performance incentives. Sales people often take months to close a deal, so letting go of a sales person is a great way to get an immediate bottom line boost.
One of your techs pointed out that a service van has worn tires. Well, they still hold air, so why buy new ones just yet? Pennies make dollars, so don’t encourage employees to turn in damaged test leads for replacement; or just tell them to make do or buy their own. Same for safety glasses and work gloves.
Do you see the pattern here? Not one of the choices mentioned is really a tough choice. Each one is a wimpy choice, made just to “cheat the sheet” in the short term. Your business temporarily looks healthier, but in reality, it gets weaker with each of these kinds of cuts.
You can save money in these areas, but not this way. You have to view savings in the long term, and this kind of simple cutting does not achieve that. The key is to be selective. Make choices that best support your operations and business goals. Sometimes, that will mean reducing or eliminating an expenditure. Other times, that will mean increasing or adding one.
For example, do you buy the highest of the high-end thermographic cameras when you don’t have a certified thermographer on staff? Or do you send someone for Level I Certification training and start out with a camera that person can fully utilize? A mismatch here wastes money. Get the right camera for your business needs (reduce a planned expenditure) and obtain the training so that the equipment can be used as your (present and future) needs dictate (add an expenditure).
In this example, a common outcome is the company outgrows the initial equipment purchase and can expand into new, lucrative areas. But only by investing in more equipment and training. Trying to “save money” by passing up additional high-margin work does not make sense. However, it happens with amazing frequency. Be alert to this kind of “thinking” and don’t fall prey to it.
Instead of just cutting expenses, you need to view expenditures strategically. Match them to your goals and related resources.
Another aspect of keeping expenses down is to look at your processes for cutting sheer waste (e.g., multiple trips for parts that should have gone out with the service van) and for opportunities to make them more efficient.
In the electrical industry, many opportunities for greater efficiency go unrealized. Other industries have, for example, fully embraced mobile technology. How can you do this for such things at various stages of your projects? While you’re strategizing about those expenses we mentioned earlier, include wireless in the conversation.
What else should you include in that conversation? The specific types of test equipment, training, hiring, and other investments will depend upon what business space you want to occupy and what kind of work you want to go after. And how well you want to do it.
Keep in mind that it’s a moving target. Things change. The local and national economies change, competitors arrive on the scene, employees leave, important accounts close or leave the area, and potentially lucrative new accounts want something you don’t quite offer.
Your management must see, and even anticipate, changing circumstances. Then they must respond appropriately (that includes avoiding inertia and paralysis by analysis).
A management that doesn’t respond appropriately to changing circumstances will take the company to a bad place from which it may not recover. Well-meaning managers may try to protect the company from “bad bets” by sticking with old, dead ideas instead of moving forward to gain competitive advantages. But this can only end badly for the company.
If your management is doing this, the death of the business will follow. That death may be long and painful, but it will come. You can avoid this fate by putting into practice the ideas we discussed here.