With 2012 now 2013, hopefully most of us are optimistic for a bigger and better coming year.
It’s also the time when we should start looking at this year’s financial statements in preparation of the company’s income tax filing.
Usually, we first focus on the “top line” or revenue. We all have a tendency to put a lot of emphasis on how much the business grossed over the course of the year.
Next, we look at gross margin, also an important metric. Gross margin is the cost of goods subtracted from revenue.
The next area of attention is net income, the so-called “bottom line” representing the difference between gross margin and expenses. And this leads us to the primary focus here: expenses.
Point Of Discussion
In the rental, production, and contracting industry these days, the big point of discussion is pricing.
I hear comments like “Can you believe what rental company X is charging to do sound for tour act Y?” It seems that everyone has a beef with a competitor about rates for services.
While I have issues with the pricing policies in our industry (many of which have been shared in previous columns), I’d like to focus on cost controls that contain expenses – and therefore – increase profits.
A turn-of-the-century industrialist once said, “You can’t become a billionaire by saving alone.”
While this is a true statement, the bottom line can indeed by substantially enhanced by keeping expenses as low as possible.
It’s critical to keep in mind that once expenses get “structuralized” in a business, they are hard to take back. For example, current staff members will become reliant on additional personnel, and it becomes painfully difficult to remove this “luxury” later, even if the additional manpower isn’t necessary. Here are four key areas to categorize expense control:
People. A while back, my friend and colleague Dennis Barry coined the phase, “Expenses walk on two legs.” While this sounds sarcastic and cold, it’s also the total truth.
Much of what we spend depends upon the number of people we employ. So be cautious when considering the addition of staff.
Exhaust every available option before adding to your staff. Explore using independent contractors or temp firms, hire as a last resort and only after you have proven that adding a staff member will add to the bottom line.