Monthly Expense Management by zjt18914


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There are three main routes to profitability—increasing sales, increasing
 gross profits and reducing operating expenses. While for the most part
shop owners diligently travel the first two routes, for most shop owners,
   employing expense management strategies is the road less traveled.

                                     here are many ways to tackle     to find better products and services for less.
                                     the task of expense manage-         To begin developing an expense manage-
                                     ment. Basically, expense         ment strategy, we recommend that you gath-
                                     management entails a consci-     er information by listing, perhaps in a
                                     entious review of policies and   spreadsheet format, all regular recurring
                                     procedures in three basic        monthly expenses that include both prod-
                    categories—purchasing, current routine ex-        ucts and services. Next, list any anticipated
                    penses and operational efficiencies. Expense      capital expenditures and other nonrecurring
                    management has to do with more than just          expenses that your business anticipates com-
                    cost-cutting; it’s a process and approach to      ing due during the course of the year—for
                    doing business successfully. Expense man-         example, a new piece of equipment, lease-
                    agement is a critical component to being          hold improvements, etc.
                    able to become, and remain, competitive.
                       There may come a time when a shop              Purchasing Policy
                    owner is faced with the need to immediately       Your shop’s purchasing policy should begin
                    cut expenses. It could be triggered by a          with the development of a budget for all
                    slump in the economy such as we’re current-       planned purchases as well as some allowance
                    ly experiencing, the threat of a new local        for emergency purchases. Start with pur-
                    competitor or simply the desire to regain         chases that you must make regularly to con-
                    profitability or to fend off losses that may      duct business, followed by purchases of
                    lead to business failure.                         items that you’d like to have but do not nec-
                       Whatever the reason, every little bit of ex-   essarily have to have.
BY BOB O’CONNOR     pense-cutting adds up. Keep in mind that             Other considerations should include   many business expenses can be negotiated for      purchasing in bulk quantities that can be
                    better rates or terms. With a little planning     consumed in a reasonable period of time,
800-755-0988        and some research, shop owners may be able        and that offer price incentives that warrant

                                                                                   August 2008                   47
inventorying those items; whether or           tomers with the information. If you’re          ant facility, exercise your rights under
not to purchase items new or used, or          mailed a check-like offer from another          your lease to audit the Common Area
even to rent rather than own; and fi-          carrier (as a potential new customer),          Maintenance (CAM) fees. Engage an
nally, of course, comparison-shopping          call your current carrier and ask if            independent Certified Public Accoun-
for the suppliers that offer the best          they’ll honor it. When you need to call a       tant experienced in such audits and ask
price and service.                             vendor or supplier, call 800-555-1212 to        the landlord to reimburse you for any
                                               see if they have a toll-free number. Use        discrepancies.
Monthly &                                      of toll free numbers can help reduce                If you own or are about to purchase
Recurring Expenses                             your long distance charges.                     your facility, challenge your real estate
The process of thoroughly reviewing               At least once a year, go to www.             property tax assessment. A recent study
monthly and recurring expenses is quite to review all pricing struc-        shows that 75% of the businesses polled
challenging because it requires due dili-      tures for phone companies in your               challenged their assessment and almost
gence, a significant amount of time and        area. You may be able to negotiate bet-         nine out of ten won!
detailed documentation. We recom-              ter rates and reduce the number of                  When it comes to interest rates and
mend that you approach this task with          minutes you’re currently paying for. We         terms, banks and mortgage companies
the idea of doing it in bite-sized incre-      have many clients who purchase phone            do negotiate. If you can beat your cur-
ments. Following are some common and           cards that can provide minutes as low           rent interest rate by 2% or more, it may
not-so-common expenses, along with             as two cents per minute. Also, you may          make sense to refinance. After all, a
ways to both control and reduce them.          want to consider using teleconferenc-           .25% per year difference in interest
   Telephones. Today’s market offers a         ing services when appropriate to re-            rates on a $200,000 loan is $500 per
significant number of options when it          duce your telephone expenses.                   year. To improve cash flow you may
comes to telephones. You may have                 Review all Yellow Pages ads, in all          want to extend the term.
available the option of using hard-wired       editions, for effectiveness. Ask the                Shop & Business Equipment. Our
phone systems or Internet Protocol (IP)        phone company exactly what you’re be-           industry has a relatively high business
phones that operate via an Internet con-       ing billed for. You may be in books that        failure rate, which provides the remain-
nection. In many instances, the IP option      you don’t know about and/or don’t               ing shop owners with the opportunity to
will lower your overall costs significantly.   need. Cancel the standing orders for            purchase useful used shop and business
   We encourage you to review the              those phone books.                              equipment for pennies on the dollar.
number of phone lines you’re currently            Internet & Website Hosting. Quite            Watch industry publications, websites
paying for, services such as voice mail        often the fees related to Internet use          and forums for these opportunities.
and caller ID, as well as other options to     and website hosting get overlooked, and             Staffing. Salaries and wages usually
see if you’re obtaining a good return on       those charges can add up over the               represent a large chunk of the cost of
your investment. You may be able to get        course of a year. You may want to go to         sales, or operating expenses. Evaluate all
along just fine with fewer lines. You may to assist you            positions for performance results vs. ex-
want to split the use of less frequently       with your review.                               pectations or benchmarks. If any of the
used lines with other equipment such as           Real Estate & Rental Space. We’ve            staff is not achieving the benchmarks,
a credit card machine and a fax ma-            found that the majority of the industry         find out why and make the necessary
chine, thereby eliminating one line.           leases far too much space for the pro-          changes or investments necessary to get
   Your business may also utilize cell         duction they achieve. Review your use           performance in line with expenditures.
phones, pagers and/or wireless Internet        of space; if you have too much space to             Reduce excess staff or limit the cur-
cards for your computers. When it              grow into in a reasonable time period,          rent staff’s hours and/or days worked in
comes to these options, weigh the re-          you may want to try to negotiate a rent         an effort to cut expenses. Many shops
turn on investment. Often these types          concession from your landlord or sublet         use part-time employees for mainte-
of equipment are more a convenience            out some of the space. If your lease con-       nance, clerical and customer service po-
than a necessity. You may also consider        tains a sublet restriction, ask for a waiver.   sitions. Part-time employees usually do
reviewing your service agreements to           Consider moving to a facility with lesser       not receive benefits, which serves to
see if you can switch to better plans          square footage when your lease is up. If        keep staff expenses low. Whenever pos-
and/or other carriers.                         you have some items that require stor-          sible, cross-train employees, and redis-
   Review both your cell phone and             age, it may be less costly to rent a trailer    tribute positions that become vacant.
long distance agreements for per-              for them instead of using expensive                 Also, try to reduce or eliminate over-
minute charges. These providers are            building space. Perhaps even renting off-       time expenses, unless they provide a di-
constantly promoting new pricing pro-          site storage may prove to be less costly.       rect return on the investment.
grams but not contacting existing cus-            If you’re leasing space in a multiten-           Health Care Benefits. Health care

48                August 2008
costs have been escalating at an alarm-       fees, present them to your credit card       ate these surcharges away. In some in-
ing rate. This has led to many small busi-    issuer and ask it to match them.             stances, by paying these charges, even
nesses implementing cost-sharing by              Business Insurance. The wrong way         though they may not be spelled out in
employees, which means the employee           to save money on business insurance is       the agreements, you may be setting a
pays a portion of the cost for the em-        to go without it. The right way is to get    precedent that you agree to them. Our
ployee’s health care premiums. To help        the coverage you need at the best price.     observations are that the more obvious
employees manage their portion of the         Put your insurance up for bid. Ask other     offenders are trash companies, laundry
costs, many shop owners have set up a         business owners for referrals of insur-      companies and other outfits that deliver
Flexible Spending Account (IRS Section        ance agents. Allow your current agent        to or pick up from your premises.
125 Plan), which enables their employ-        to participate in the bid process. You           Also, review your contracts for auto-
ees to pay a portion of their health insur-   may be surprised at the new prices!          matic price escalation based on percent-
ance costs with pretax dollars.                  Review all insurance deductibles, in-     ages. We had one client who found a
   Another method of controlling health       cluding health, casualty and the exclu-      company had been overcharging him for
care costs is by increasing deductible        sion period on disability insurance. Ask     the past two years. He obtained a refund
and prescription copayments. Many             your insurance agent for a review of         in excess of $600! So it pays to audit your
shop owners are educating their em-           your facility and equipment. Ask if all      invoices, statements and contracts. This
ployees about purchasing generic pre-         your currently owned assets, and only        type of review applies to utility and
scriptions whenever possible, and rec-                                                     phone bills as well.
ommending that they obtain the best                                                            Utilities. Turn down the thermostat,
price by calling and comparing prices at      The wrong way to                             use energy-efficient lighting and turn off
local pharmacies.                               save money on                              the lights when you leave a room. Ask
   Some companies have slowed premi-                                                       your local utility companies about bud-
um increases and in some cases even           business insurance                           get billing, and review the many other
received better rates by becoming a            is to go without.                           energy-saving and money-saving tips
smoke-free workplace.                         The right way is to                          listed at the U.S. Dept. of Energy’s web-
   Banks & Credit Cards. All bank                                                          site,
statements should be reviewed for un-          get the coverage                                Postage & Shipping Fees. Using a
usual or miscellaneous charges. Again,            you need at                              postage scale will reduce postage and
banks do negotiate. If you seek a sizable       the best price.                            UPS costs. Of course, make certain cur-
loan, apply to at least two sources of                                                     rent rates are programmed in.
funding. Ask the bank with the higher                                                          When contemplating shipping, al-
rate to beat any lower rate that may be       your currently owned assets, are cov-        ways ask yourself if it really has to be
offered.                                      ered. Make sure you’re not over- or un-      there the next day by 10 a.m. Perhaps
   When a check is returned for “insuf-       derinsured on your business assets,          an afternoon delivery or second day de-
ficient funds,” call the local law enforce-   business interruption and other types of     livery would do just as well. Inform em-
ment to ascertain their policy and pro-       coverage.                                    ployees of pricing by posting a schedule
cedures. Usually you send the customer           Also, request a safety inspection pro-    with costs for Federal Express, UPS
a certified letter, giving him up to two      gram. Implementing the insurance             and the U.S. Postal Service, or any oth-
weeks to make good. After that, the po-       company’s ideas could reduce insurance       er overnight delivery service your shop
lice can be asked to intervene. A prop-       premiums, decrease job-site injuries         uses. Of course, whenever possible,
erly worded letter usually gets the at-       and reduce medical leave.                    send a fax or e-mail instead of so-called
tention you want. In some states, collec-        Invoices, Statements & Contracts.         snail mail. Besides getting instant deliv-
tion agencies can collect three times or      Review all supplier invoices, statements     ery, you’ll save on postage, envelopes,
more of the face value of a check and         and contracts for errors and miscella-       paper and mailing time.
are eager for your business. No need to       neous fees and charges. Some vendors             Office & Other Supplies. Mini-
swallow those NSF checks!                     are now implementing fuel surcharges         mize purchases of office supplies from
   When utilizing credit cards, you may       or “recovery” charges on their invoices.     local stationary stores. Save money by
want to compare business and corpo-           If you’re under contract with some of        purchasing via mail order and online.
rate credit card rates and services side-     these suppliers, read your contract. If a    Purchase needed items ahead of time
by-side. You can make those compar-           contract does not include a fuel sur-        when you find them at a good price.
isons online at          charge or recovery charge, you may be            When it comes to forms, instead of
Revisit your credit card fees and contin-     able to legally refuse to pay that vendor.   spending time creating them yourself
ually shop around. If you locate lower        Sometimes you may be able to negoti-         or buying them at your local office sup-

                                                                                                   August 2008                    49
ply store, you can download, customize            can be achieved by streamlining pro-              Implementing an expense manage-
and print lots of free forms online at            cesses within an organization.                 ment strategy can help you remain prof-                        Parts Inventory. Managing your              itable by identifying all the costs associ-
    You can save money by shopping at             parts inventory is critical to your busi-      ated with doing business, then striving
discount stores. These stores have a va-          ness. Having too much or not enough            to keep them under control and within
riety of merchandise such as cleaning             inventory—or the wrong inventory—              budget. By clearly identifying these
supplies, tools, stationary items, etc.           can significantly impact technician pro-       costs, you can impact expense manage-
    Travel & Entertainment. Review                duction. Your parts inventory should be        ment by ensuring that only approved
your travel and entertainment policy. In-         consistently tweaked to enable top tech-       expenses are incurred, that proper
stitute one if there is none. Lodging costs       nician performance. We have been en-           records of expenses are kept and that
can be reduced by using less expensive            couraging our clients to work with both        everything is within budget.
chains. Have you negotiated corporate             their parts suppliers as well as their soft-      In addition, by taking a more active
rates? Are AAA or AARP rates lower                ware vendor toward maintaining an op-          role in expense management, you can
than the corporate rates? Set per diem            timal inventory. We have also encour-          implement policies to make sure one-
limits on meals, reduce or eliminate cash         aged our clients to maintain higher lev-       time and high-price expenditures re-
advances and tighten receipt require-             els of inventory where feasible, since         ceive required approvals as well as that
ments. Require detailed receipts for              the cost of delivery or pickup is continu-     your own payments are made in a time-
lodging expenses, not simply the credit           ally rising.                                   ly manner. By keeping expenses within
card receipt. Disallow room service,                 Having the correct parts readily avail-     realistic boundaries, expense manage-
minibar charges and other nonbusiness-            able has a significant effect on techni-       ment can ensure continued profitability
related charges which otherwise may be            cian efficiency and relates directly to        of your company.
hidden on a credit card receipt.                  achieving billable hours objectives.              In this article we’ve presented a few
    Fuel Costs. Rising fuel costs can                Other Efficiencies. As part of your         ideas on how to save money by manag-
place an undue burden on your compa-              expense management strategy you                ing your business expenses. Try to make
ny’s bottom line. But there are some              should align yourself with a competent         implementation of an expense manage-
common sense changes you can make                 management coach. Our observations             ment strategy an ongoing process to
that can help buffer the impact on your           indicate that the most significant ex-         help you stretch your money, especially
business.                                         pense in a repair shop today is the loss       during tough times. Place your empha-
    For instance, you may want to review          of revenue that stems from inefficient         sis on building a strong financial base
your shuttle service policy. Give some            workflows. A good management team              rather than on spending money on
thought to combining trips to accommo-            can determine areas in need of im-             things you don’t really need.
date more than one customer. A little             provement and provide you with sug-               Start cutting expenses today toward a
planning can go a long way toward saving          gestions to improve those workflows            goal of building at least a year’s worth of
your company money at the pump. This              and increase operational efficiencies.         financial reserve for your tomorrows. It
might require upsetting current shuttle                                                          can be done!
schedules and rearranging preexisting             You Can Do It
routes, but if it results in greater fuel effi-   Money problems are seldom about                Robert “Bob” O’Connor is President of
ciency, it will be worth the hassle.              money, but rather emanate from                 R. L. O’Connor & Associates, Inc., a
    Another viable practice is to encour-         lifestyle choices. For example, I recent-      Seattle-based automotive operations
age—or even require—employees to                  ly spoke with a shop owner who told            and management training and consult-
share rides to conferences, training and          me he was in financial trouble and was         ing firm. He is best known globally for
other events when the company is foot-            looking for ideas to save his business.        his highly effective automotive business
ing the bill. If gas costs weren’t an issue,      He then mentioned that he was taking           management and sales training work-
it would be perfectly acceptable for em-          his family on vacation the following           shops, continuous improvement Bot-
ployees to drive themselves to confer-            month. He must have felt it necessary          tom-Line Impact Groups, as well as his
ences and other business-related                  to justify his vacation plans because he       new division, The Service Advisor
events. But when fuel prices become a             proceeded to tell me he was taking the         Academy. Bob is an Automotive Man-
factor, the old rules no longer apply.            vacation in spite of his dire financial sit-   agement Institute (AMI) approved in-
                                                  uation, as it was important to create a        structor and AMI EXCEL “Guarantor.”
Operational Efficiencies                          positive memory and good time for his
One area in which you can focus your              kids. I wonder how much he’ll enjoy             This article can be found online at
expense management efforts is opera-              the vacation memories when his busi-      
tional efficiency. Increased efficiency           ness fails.

50                 August 2008

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