As businesses grow with time, bad habits begin to form. These bad habits take many forms…some will effect your customer service, some will effect your employees, and most all will effect your bottom line. For those of you that have ever purchased a business, you will know exactly what I mean.
When you purchase a business, you are often purchasing an entity that has been operating for some period of time. As the new owner, you now approach the business with the benefit of fresh eyes. You begin to ask questions such as “why were they spending so much on (insert line item)”. Inevitably, you dig into it and find a better way.
I had this exact experience. I was able to put $25,000/year back in my pocket by making changes to the software we were using, our garbage schedule, our security company, where we purchased supplies, merchant services, and a few other areas. As I sit here today, I now notice my income statement swelling with “bad habits”. Every 6 months or so I do a deep dive into my income statement to see where I can save money.
Here are 3 areas where you are most likely wasting money in your business.
1. Marketing
Lazy and inefficient marketing can be a huge cash drain on the business. Not only is the marketing you are doing not bringing in any new business, but it is also draining cash. When I took over at one of my businesses, we were spending $500 per month with a marketing company to do blogging and SEO. We were also spending $650 per month with advertising in a local parenting magazine. Add this all up and we were spending almost $14,000 per year on these two items alone!
Because we didn’t have Google Analytics setup at the time, it was hard to gauge the success of the blogging and SEO marketing. Further, because our advertising in the magazine was such that we didn’t use coupon codes our collect coupons turned in by customers, it was hard to gauge its success. However, I had my concern that neither of these was resulting in a positive ROI (return on investment). Instead of implementing a plan to find out, I simply turned them both off. And guess what!?!?! Our business was not affected one bit.
Most of your marketing should be measurable to see what success is resulting from it. That can take many forms and the point of this article is not to go into them. However, if you are not able to measure your marketing, you are essentially lighting your cash on fire. Look at marketing as an investment. You should expect a return on your investment so if you are not getting more money out of a specific marketing tactic than you are put in, stop doing it!
2. Software and Point of Sale
One of my old businesses made the decision to move our merchant processing over to Square a few years ago. While we were set to save a few hundred per year on or merchant services, we saved over $3,000 per year on our point of sale system. There are a ton of point of sale systems out there and many systems are so much more than just to collect payments. Many of them do scheduling, resources allocation, and so much more. However, a lot of that can be overkill.
Many businesses have a bad habit of collecting software systems like they were vintage comic books. Unfortunately, unlike those comic books collecting dust in the corner, the software systems quietly collect cash from your pocket book.
I had a client that used a cloud-based system to produce marketing videos. Soon after, they decided they need a system to automatically schedule and post items to Facebook. Next, they needed cloud software to produce better Facebook posts. This was all on top of Mail Chimp and their loyalty software. All told, they were spending just under $5000 a year just on marketing software. This specific business was relatively small, so it was hard to justify this amount. Soon after, they ramped down their effort on marketing, but they didn’t cancel all the software. Some of it was still used, however, none of it to its full capabilities.
Just like those text messages from your ex, you need to get rid of old software systems. New ones are also coming out all the time. You should constantly be evaluating if the systems you are using are the right ones for your business.
3. Insurance
Insurance for most is like that trip the car mechanic…you know that whatever they are doing is needed, but you have no idea what they are doing and if there is a cheaper way to do it. Every business owner has insurance so this is something we all deal with. I am lucky enough to have an agent who was the best man at my wedding. As such, he is a little more willing to sit down and walk though things with me.
There are a few big factors that drive your insurance…two are your revenue and your employee’s wages. Its amazing how many companies overestimate their revenue when it comes to insurance. It’s equally amazing how many businesses or employees are wrongly classified resulting in thousands of dollars of overpaid premiums.
I had a client that was a childcare center. One day we sat down and looked at their insurance I noticed all of their employees were classified in one category. That includes the one that did bookkeeping from home and their marketing person who rarely stepped foot in the facility. These two combined made around $100,000 and were classified at the normal childcare employee rate. The difference between the clerical rate both should have been at and the childcare rate they were at resulted in over $800 in additional premiums. For this particular client, it was just the tip of the iceberg as they ended up saving over $2,000 per year once we were done.
There is a point where I see some bad habits that cost $100/year and I let them go. The time and effort to fix them just isn’t worth it. However, as a business owner, I know that every dollar I drop to the bottom line that turns into net income goes into my pocket. If I can save $2000 by simply reclassifying my employees on my worker’s compensation insurance or changing my trash schedule, then I just gave myself a raise.
The first part of this exercise where you simply identify expenses that are not justified is easy. The second part where you find alternatives to current expenses is where you can really save money. That is where Krieger Analytics helps our clients. If you’d like to discuss this more, then reach out to us. Our phone calls are always free.