Fixed Costs - Wendy Dickinson

Wendy Dickinson - "Catalytic Conversation$"

Introduction
COVID19, racial reckoning, economic uncertainty, the upcoming election….

Each is a complex, impactful occurrence.  Together - the challenges keep every business owner ready to take up the fight, flight or freeze reaction in our reptilian brains.

McKinsey recently reported that some industries will take up to five years to recover.  Others were able to pivot and navigate the new government recommendations with some success.  In the messy middle are those businesses that are working through the complexity one step at a time.  The small businesses have sustained most of the economic punches of this crisis.

Each owner’s experience is different.  So, take what we talk about today with the knowledge that there is no silver bullet, or one size fits all or a magic pill.

We suggest that you remember the IBGR Profit Radio formula: F= (O+C+P)E.  You are the amplifier, you are the multiplication variable in this equation.  This is your day to work ON your Stage 5 business.

Your (O)X is YOURS.  YOUR business may be similar to others, but it’s all being done by you.  Use me and this show to act as a catalyst for change.  Use Catalytic Conversations to propel your business to profitability by creating an (O)X that contains leadership of self, others, ideas and RESULTS.

Within each challenge of a VUCA world, complete your SWOT analysis.  Recall your vision, mission & purpose.  Why did you start this business?  How does your current business model align with your purpose and how does it not?  The critical question in front of you today is sell the business, or reinvent it.  As the owner, you have the luxury of creating a scenario of profitability for both the sale of your business and the reinvention of your business.

Lastly, we challenge you to look at each topic this season with the intention of usinga growth mindset (definition: through practice, work and study you can master the skill you need), and expanded sense of awareness, while building a sense of readiness and resilience within the company.

If you’re curious about how IBGR structures it’s programming, let me clue you in. 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.

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Have a great business week.
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Show Objectives
Remember you are running the “what ifs” around two different scenarios - selling the Business and Reinventing it. In both cases you are looking for improvements in the metrics of fixed costs to improve profitability. Determine where it is a short term gain for the sale or a longer result that facilitates the company’s reinvention.

Key Issues - ​Owner Perspective:

1. Impactful steps to improve the balance sheet, prune away the dead costs, and overall profitability.  This is beneficial to both selling and reinventing.
2. Improve the company's retained earnings and position those earnings for potential ability to self finance.
3. Prioritize and then execute fixed cost operations that can be achieved with a minimal amount of disruption, and maximum savings.
4. Visit my website at www.ascendcoachingsolutions.com and DL my free PDF on  Four Steps to Pandemic Survival.

What You Need to Know

• Government and Health agencies worldwide had a major impact on the economy.  Everyone went into supply shock - today we are in the next phase - demand shock.  People don’t feel safe or comfortable in many businesses, so they aren’t visiting or buying.  Identify what your clients & customers need to feel safe, then implement.
• Meet with your accountant, bookkeeper, &/or CFO.  Determine the role of the following areas in the cost structure:
  • 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.
• Visit my website at www.ascendcoachingsolutions.com and DL my free PDF on Scenario Planning: Re-vision and Recovery.

Previous IBGR Shows

• EPISODE B.016 REDUCING COSTS IS FOUND MONEY

What You Need to Do​

1. The Predictive Index reported recently that 39% of CEO’s have placed strategy development as their #1 priority.  The 2nd?  Talent Strategy.  And, the 2 are intertwined.
2. Consider a change to the method of Depreciation - is there short term gain, or not?  (Selling the Business - NO) Does this option offer long-term gain?  (Reinventing the Business - Maybe).
3. Could a change in the method of Amortization offer a reduction in fixed costs, and an increase in profit? (1) Full amoritization - loan to zero at the last payment date, (2) Partial amoritization - paying less over time with a closing payment of the final date, (3) Interest only amoritization  - at the end of term principal is due,(4) Negative amoritization - less than interest only with a large payoff.
4. Look at your company’s Insurance policies: what would a short-term shop with the lowest cost provider and reduce benefits to minimal levels offer for Selling the Business, and for Reinventing the Business.
5. Collect data on compensation throughout the company.  Look at Salaries: how would choosing to top grade all positions.  Segregate and identify candidates in the bottom 10%.  Designate those positions for separation or part-time and devise a plan to execute on that decision. This would be a benefit for those of you who want to sell the business. If you plan to reinvent the business, it may also be a benefit - weigh the implications.
6. For your equipment rentals & leases: if you have multiple leases from different manufactures (1) consolidate leases with one financing agency.  This would be a benefit for both selling and reinventing the company.
7. Consider a plan to reduce all spending by 10%, for those departments/people in the back office and overhead areas.  This is a worthwhile exercise for both selling and reinventing scenarios.
8. Visit my website at www.ascendcoachingsolutions.com and DL my free PDF on Disaster Preparation & Recovery For Any Size Business.
9. Visit Mick Wienholt of Schooley Mitchell, at www.schooleymitchell.com/mwienholt, or email Mick at mick.wienholt@schooleymitchell.com.

Shows

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

Resources

• COVID19: Implications For Business, McKinsey, October 14, 2020, Executive Briefing.
• The FIT of Strategy, Value, and Price: Maximizing The Value of Your Business, by Enrique Quemada

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