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Are you tolerating a business that’s barely profitable?
Hi, this is Judi Otton with GrowthCast and today we’re going to finish up talking about the three levers that you have to control your profitability. Just as a quick reminder, the first one was pricing, and the second one was the cost of the goods or the services that you deliver. And the third lever that you have control over is your overhead, and that’s all the things not related to delivering your services. So today we will talk about three things to look at when trying to control your overhead.
The first thing is a budget. Create and try to stick to a budget. Now a lot of people have some resistance to this, and if you’ve ever worked in corporate, you may have had budgets used inappropriately to punish or to force you to stay in a box. As an entrepreneur, budgets are a fantastic tool, and in fact, the process of creating your budget is, I would say more than half of the benefit that you get out of it. You will go through, hopefully, with help, you will go through every line on your profit and loss and really think about what needs to be in there and what doesn’t need to be in there. Now I get that sounds intimidating, and sounds overwhelming, but I do this a lot with companies, and it doesn’t have to be that way. So creating and trying to stick to a budget is a great way to manage your overhead.
The second one is minimizing your turnover. Turnover is very expensive. Some estimates have it at up to 100% of the salary of the person you lost. So if you lost a person for that you were paying $75,000, that turnover could cost you up to $75,000 with training, job hunt costs, unemployment costs, if applicable, loss of business continuity, loss of efficiency. There are a lot of things that don’t immediately look like their costs, but they really do impact the way that your business functions. So do what you can to minimize turnover by hiring slow firing fast, making sure that you know who you need in a role, and getting some help if appropriate.
The third area I want to talk about is efficiency improvements. Now we talked about this in cost of goods and sales as well, but this also impacts the cost of your overhead, and investing in efficiency improvements really can give you a great return on investment. Things like making sure your folks are appropriately trained, and making sure they have the appropriate equipment. I had a client recently where none of the computers in his office functioned well, they were crashing this one couldn’t get on the internet. This one couldn’t load QuickBooks. It took us forever to do the work that we needed to do. And the last way to improve efficiency is by documenting your standard processes so that the folks in those roles can say, oh, I need to do this, let’s do these steps. And should you have turnover, which happens, a new person can come in and hit the ground running.
I’m going to continue this toleration series. We’ve talked about tolerating a barely profitable business, but I see many other things that business owners are tolerating in their businesses that they don’t have to. If you have something you’re tolerating that you’re just really sick and tired of, please leave a comment. I’d love to create a video or if you prefer some private feedback, I’m happy to do that as well. And if you want to learn how to clean your business up all at once, please check out my Fiscal Fitness Boot Camp.
I’ll be back next week with a new Fiscal Fitness Tip of the Week.