Episode B.016 Reducing Costs is Found Money

Author's Notes
We are introducing a new format to our Show Notes and Broadcasts. We received feedback our podcasts are too long (average 26 minutes). The shows have been restructured into 13 minute segments - each with a specific objective. Segment 1: What the show will cover and why it is important. Segment 2: What do you need to know to take action. Segment 3: How do you apply it and the tools available, and Segment 4: Tips and Insights from our experience. Thanx for the Feedback and keep it coming.

What are Today's Topics & Why is it Important?​
Although today's show is on reducing costs as found money, the reality is a business can be viewed as a bank - where is the money waiting for somebody to claim it?

Places to Look for Cost Reductions:

• Inventory
• Accounts Payable
• Variable & Fixed Costs

Knowledge to Take Action
Short Term Focus
View this as triage. What is the current situation? Where are you hemorrhaging money, customers, employees etc? What is the root cause of the bleeding? Then fix it! We always start with finding the money laying around - inventory gathering dust, missed accounts payable discounts, and the lack of cost controls. Our experience is the first time you aggressively go after these issues will add 10-20% more cash. We use those dollars to help fund cost reductions in production, marketing, sales, and people.

Long Term Focus
Once we have righted the ship and making a profit, the focus shifts to our journey and the first port of call. The near future includes scalability - when growth starts what is getting in the way and how much money will we need. Part of the money issue is the source of funding - are we going to pay for this out of sales or look for capital investments? Beyond the near future is looking at the external environment for threats and opportunities. What is coming down the road we should prepare for before it arrives?

What You Need to Do
Inventory

1. Check on your turns per year and double it
2. Sell inventory aged over 6 months or 1 season
3. Everyday take out 1 day of inventory until it hurts
4. Have the supplier store inventory
5. Use their transportation system as a warehouse
6. You must have a "get right" plan

Accounts Payable

1. Determine number of +30 day accounts
2. Create a budget or "get right" plan for every supplier consistently over 30 days
3. Renegotiate your deals especially all COD requirements and early payment discounts
4. Add up all of the early payment discounts and COD reductions - consider this found money, add to the "get right" budget

Fixed and Variable Costs

1. The secret is subtractions, strip away anything that is not core - no savings is trivial
2. Reduce all spending by 10%, if that doesn't dig you out - make it 20%
3. Reduce your salary by 20% and pay yourself back based on cost reductions
4. Reduce the salary of all managers and supervisors by 5% and pay them back with bonuses based on cost reductions
5. The get right plan focuses on one element of the business every week - concentrate energy
6. Add up all of the savings and remaining lines of credit - consider this found money, add to the get right budget

And never forget how you got here, how serious it became, and how hard it was to dig out. Make frugality one of your operating principles. 

Next Show: ​Your First Real Budget