The Importance of Financial Discipline Part 2

Part 2: Increasing Profits by Eliminating Leaks

Listen carefully.  Can you hear it?  That’s the sound of your business losing profits . . .  one drip at a time.

Unless you are always questioning, “Are we doing everything we can to keep our costs down,” your business could benefit from adopting a “Drip Culture.”

A Drip Culture is simply the process of attending to every “leaky tap” in your business – the evergreen equipment lease that automatically renews, the contract that hasn’t gone out to bid in several years, the old fee structure that no longer provides the best price for your current business volume.  The more you look around, the more leaks you are likely to find. 

If your business is like most, you are always trying to replace lost profits by increasing sales.  But reducing expenses, or stopping the leaks one drip at a time, is another way to contribute to the bottom line.

Even more worrying is the possibility that indifference to profit leaks in non-core expenses may also extend to your company’s core costs, which would put the business at risk.

The pursuit of a Drip Culture is not difficult or complicated. It’s simply about questioning every business expense.  Drip Culture is not a one-time exercise.  You don’t just do something once and then sit back and think “okay – done!”  Rather, it’s a culture that needs to be kept alive and well in your business.  If actively pursued, a Drip Culture ensures that everyone in your company is constantly checking for profit leaks.  Every time a drip is discovered, no matter how small, it will be addressed.

Drip Culture is about eliminating waste, not cutting out necessary and productive business tasks.  By adopting a Drip Culture as a part of your business plan, the goal of saving money will permeate every part of your company and lead to increased profits.

Here are a few guidelines for bringing a Drip Culture into your organization:

·         Do not overlook any costs when looking for profit leaks.  No business expense is sacred. 

·         Constantly ask, “Is this expense really necessary?”  If your answer is “We’ve always done it this way,” that’s a sure sign of a cost that can be reduced or even eliminated altogether.

·         Write down the savings you expect for a cost – then double it.  Most of the time we limit our efforts to our expectations.  Why be satisfied with saving 10% when you may have easily achieved a 20% savings?

·         Ensure the changes you identify are implemented. Many good money-saving ideas are lost simply through a lack of action and the drip continues.

• Make sure you can measure the savings.  That’s the only way you can be sure you have achieved cost reductions.  Reward yourself by recording the results of your efforts.

As your record grows, you will be well on your way to a Drip Culture that values adding profits to the bottom line.

Wes Thompson is the Managing Director for Michigan with Expense Reduction Analysts, a consulting company that specializes in reducing overhead expenses. He is also a member of The Business Improvement Team, a consortium of Southeast Michigan consultants that can address all aspects of operational improvement.  He can be reached at (248) 672-3504 or wthompson@expensereduction.com