EPISODE E5.003 Improve Profitability from Fixed Cost Operations

Introduction
Here we are in the last week of July and the first month of the 3rd Quarter is ending - how much closer are you to success?

If you have been with us all month, you know we have been railing against the politicians and bureaucrats for acting arbitrarily in response to the pandemic; and any illusion they are making data-based decisions should have been dispelled by now. This is not about a specific political party or group, it is about the arbitrary use of power at the expense of the most important global community - you.

People like us, Living the Life, employ 57% of the planet's population and yet are treated as the source of its problems. Not here, we celebrate the contribution you make to a better society and our focus is to improve your chances of success. 

This week we continue the new programming structure. We use a Balanced Scorecard to format our weekday shows: Finance (Monday) = Operations (Tuesday) + Sales (Customers) + People (Employees) with Fridays dedicated to Owners. Look at the week this way - Monday through Thursday is working IN the Present, Friday is working ON the Future.

Also, we just built a new community, our version of a Chamber of Commerce. Join Up and gain access to our Hosts and access our library of best practices.

Have a great business week.
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Show Objectives
Remember you are operating under two different mindsets - selling the Business and Reinventing it. In both cases you are looking for improvements in the cost picture from the fixed cost side to improve profitability. The only issue is whether it is a short term gain or a longer result.

Key Issues - ​Owner Perspective:

1. What can immediately impact the company's profitability to improve the balance sheet.
2. What can improve the company's retained earnings and improve its ability to self finance.
3. What can be achieved with a minimal amount of disruption.

What You Need to Know

• Depreciation: represents how much of an asset's value has been used up. Depreciating assets helps companies earn revenue from an asset while expensing a portion of its cost each year the asset is in use;
• Amortization: is an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time;
• Insurance: is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company; 
• Rent Paid: is the cost incurred by a business to utilize a property or location for an office, retail space, factory, or storage space. Rent expense is a type of fixed operating cost or an absorption cost for a business, as opposed to a variable expense; 
• Interest Expense: is the cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. 
• Property Taxes: Property tax is a tax paid on property owned by an individual or other legal entity, such as a corporation;
• Salaries: a fixed rate of pay, they also have specific responsibilities and tasks that must be met or completed—even if that means longer hours and occasional weekends;
• Utility Expenses: Utilities expense is the cost incurred by using utilities such as electricity, water, waste disposal, heating, and sewage;
• Equipment Rental or Lease: is a contract that allows for the use of an asset but does not convey ownership rights of the asset;
• Legal Expenses: the fees, costs and expenses of any kind incurred and its counsel in investigating, preparing for, defending against or providing evidence, producing documents or taking other action with respect to any threatened or asserted Claim.

Previous IBGR Shows

• EPISODE B.016 REDUCING COSTS IS FOUND MONEY

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).

Shows

• Previous: EPISODE E5.002 IMPLEMENTING PROFIT PLAN
• Next: EPISODE E5.004 Improve Profitability from Variable Cost Operations