5.15.80: The Elite 5% - maximizing profit by reducing fixed coSTs - william eastman

PROFIT RADIO - "A Network of Entrepreneurs for Entrepreneurs"

Introduction
​We introduced the 5.15.80 Model at the beginning of the Season. It was a combination of research into small business performance and our practical experience from the last 2 decades. You could go to any area around the global with a market based economy and randomly select 1,000 companies, here is the distribution you would find: 5% or 50 companies that own their markets, 15% or 150 companies that are making money, and 80% or 800 companies that are barely surviving.

This series is about how to move from one level up and our concern in this series is the 5%, not how you get here which which is covered in the 15% series; the focus now is how to SUSTAIN market leadership.

LISTEN > ENGAGE > APPLY

Show Objectives
Today we start 7 of the 9 Disciplines of Market Domination. These are the intermittent disciplines that will move a successful business to a market dominator.

Disciple 7 is the first of two attacks on cost - fixed.

Fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any specific business activities.

Key Issues - Owner Perspective:

1. What should I do to minimize my fixed costs without jeopardizing operations or growth?

What You Need to Know

• Depreciation and amortization – the gradual writing off of the cost of tangible and intangible assets over their useful lives
• Advertising – including the cost of website hosting and media campaigns
• Salaries– fixed compensation amounts paid to employees regardless of the number of hours worked
• Rent or mortgage payments – monthly payments to a landlord or lender
• Insurance – periodic premiums paid to an insurance company
• Interest expense – the cost of borrowing, as long as the loan agreement calls for a fixed rate of interest
• Property taxes – taxes charged by a local government
• Utilities – the cost of electricity, gas, phones, trash and sewer services, etc. Some utilities, such as electricity, may increase when production goes up. However, utilities are generally considered fixed costs, since the company must pay a minimum amount regardless of its output.
• Office G&A - General and administrative (G&A) expenses are incurred in the day-to-day operations of a business and may not be directly tied to a specific function or department within the company. General expenses pertain to operational overhead expenses that impact the entire business. Administrative expenses are expenses that cannot be directly tied to a specific function within the company such as manufacturing, production, or sales. G&A expenses include rent, utilities, insurance, legal fees, and certain salaries.

What You Need to Do​

1. Change the method of Depreciation - no short-term gain (Selling the Business - NO), better long-term (Reinventing the Business - Maybe).
2. Change the method of Amortization: (1) Full - loan to zero at the last payment date, (2) Partial - paying less over time with a closing payment of the final date, (3) Interest only - at the end of term principal is due, (4) Negative - less than interest only with a large payoff.
3. Insurance: short-term shop with lowest cost provider and reduce benefits to minimal levels (Selling the Business - YES), (Reinventing the Business - Maybe).
4. Salaries: Top Grade all positions and identify candidates in the bottom 10% for separation or part-time (Selling the Business - YES), (Reinventing the Business - Maybe).
5. Equipment Rentals & Leases: if you have multiple leases from difference manufactures (1) consolidate leases with one financing agency (Selling and Reinventing - YES).
6. Reduce all spending by 10%, for those departments/people in the back office and overhead areas (Selling and Reinventing - YES).

Next Week - Maximize Profits - Variable Costs.

1. Follow the 5.15.80 Series all season.​
2. Get your business growth news everyday from IBGR.Network
3. JOIN the IBGR Community
4. DOWNLOAD the IBGR Growth App
5. RESEARCH anything related to Starting, growing, or Exiting a business on the IBGR Network

We are your single, one stop source for business success, period, end of story.

Make sure you leave some thoughts in the comment section below. I am interested in continuing the conversation.