Gross margin (the middle of the income statement) focus is essential to sustainable profit and cash flow improvement. This requires analysis and business process improvements that take time to complete. Immediate profit and cash flow opportunities can be found in operating expenses, spending not directly related to producing a product or service. Examples, are insurance, office expenses, freight, utilities, telecommunications, document production and merchant card fees.
Certainly it is understood why reducing expenses is important. So why doesn’t every business keep a focus on operating expenses? Competing priorities, limited resources and the assumption these expenses are as low as they can get are typical reasons. So why not give this responsibility to subject matter experts (SME) who focus on particular expense categories. We outsource other tasks to specialists, so why not for operating expense reduction?
As with any outside resource it can be difficult to identify the top performers, but many don’t engage an SME because they take a sizable portion of the savings as their success fee. Let’s think through this. Wouldn’t you like all your employees and suppliers to work on a success fee rather than get paid regardless of results? How many other service providers work only on a success fee? Even though savings are shared, it is often only over a limited period, allowing the company to benefit going forward at 100% of the savings.
Operating expenses offer immediate profit improvement opportunities not to be tackled only during difficult times. And when business is difficult these are immediate opportunities that can offset other much more painful cuts.
Let’s make it our goal to stay on top of operating expenses and put the savings to work growing the business.
