In the world of small business, cost control is king. Sure, building revenue is fun and exciting, but at the end of the day if expenses just creep up to take your profit, you are spinning your wheels.
I once sat on an advisory board for a large corporation and each month’s meeting was quite the affair. There would be platters of food as well as wine and cocktails all served in a large auditorium. Each month a different department of the organization would present to the advisory board some new, innovative undertaking they had dedicated their recent focus to. At one of the last meetings I attended, I sat in the comfy overstuffed chairs contentedly munching on bacon wrapped dates and sipping Chardonnay while a committee of six people presented the massive progress they had made over the prior six months on improving a form that evaluated the forms used for customer intake. That’s right. Six people. Six months. A form to evaluate a form. I slowly came to the realization that I had to get the Hell off of this board. Even if they fed me dates.
Small businesses need to get more done with less. Entrepreneurs don’t usually have six people to evaluate anything – much less a form for a six month period of time. Give an entrepreneur six bodies, and they will create a team to do the work of twelve. Entrepreneurs have much less funding, less access to financing and tighter budgets. This is why it is just as important to look at keeping expenses efficient while you continue to grow the top line of your empire.
1. It takes money to take money. I know what you’re saying – “Yeah, yeah. I’ve heard that one a million times.” But look at it this way – in many businesses there is such a tight stranglehold on spending, that the things the team needs to actually improve productivity and happiness aren’t invested in and the company falters. I went through a period of VERY tight cashflow in 2011 after buying out a partner. My team was actually afraid to buy coffee. But this is not a way to reward the team for hard work. My focus now is on keeping the candy bowls filled, keeping drinks and snacks in the fridge and, yes, always making sure there is plenty of coffee. Invest in the things you need to ensure you team is operating at peak performance.
2. Running a business is frigging expensive! Building the foundation that will allow your company to grow is going to cost you a pretty penny. It is very common that a company in growth mode will see shrinking profit margin percentages before they start to increase. This is a part of the process so try not to panic. Instead focus on having an intimate understanding of what caused the decreased profit margin. Did you spend additional funds developing a new product? Did you hire new people because you wanted to train them before an explosion in growth next quarter? These are sound and justifiable reasons for increasing your overhead prior to revenue catching up. If you see the trend continue and can’t explain it, then you need to take a serious look at the numbers and understand what is happening.
3. Budget. Budget. Budget. Enough Said. Your budget is your windshield. If you don't have it, you can't see where you're going. Understand your company's burn rate (meaning everything you need to spend each and every week or month) and how that integrates with your revenue. Budgeting for revenue will show you what you need to bring in to break even - but more importantly what you need to gross to meet your goals as the CEO of your company.
Small businesses and big businesses operate very differently. Small businesses need a strong positive trajectory, more internal bandwidth and financial stability for the initial stakeholders. Big businesses need shareholder approval, multi-level committees and legal departments. The nimble small business has the opportunity to grow and prosper while staying lean and mean. Keep your expenses in check and you will no doubt succeed.