Now that we’re about 50 days into the new year, we are beginning to see some early trends emerge from our clients, and the SMB community in general, about how to increase profitability and maintain market share. After a year or so of fighting inflation through higher interest rates, all public measures indicate that inflation is increasing at a slower rate. Interest rates are still high comparatively, making borrowing more expensive; but perhaps borrowing will become more easily accessible once financial institutions get a decent feel for how the American economy is faring in general. In addition, it appears that the supply chain strain that has affected so many businesses over the past couple of years is abating, resulting in slower price increases from suppliers and more normalized quantities readily available.  

One person who embodied the spirit of cutting costs was “Chainsaw” Al Dunlap. Dunlap was a well-known business executive from the 1990s who earned his nickname by turning companies like Sunbeam, Scott Paper and Kimberly-Clark around. Although his approach to cutting jobs and business expenses was seen as cold by his critics, he felt that his ability to look at things analytically and make difficult decisions was imperative, especially during times of economic slowdowns when companies fight for survival. For a more detailed understanding of Mr. Dunlap click here.

So what does all this mean for the entrepreneurial community?

It means that we are starting to focus on cutting costs more than raising prices in order to reach 2023 budgeted profitability and operating income metrics. As you consider ways to save money and expenses, the best way to do that is to go down your income statement and examine the expense categories, particularly where the larger areas of money spent could potentially be cut back as a cost-saving measure. Here are some typical examples of of the larger line item categories:

1. 1. 1. Employee Headcount: Reexamine the budgeted increase in your headcount plan. Look for potential savings by combining job functions from multiple roles or by delaying hiring.  
      2. Inefficient Use of Technology: Look into automation, general ledger systems, and more integration overall. Invoicing systems, payroll systems, and other technological programs, like CRMS, help to streamline processes and save time (and money!). 
      3. Low-Hanging Fruit: While there are lines of the income statement that aren’t necessarily large at first, they can add up to a lot quickly. Although time consuming, it’s an important exercise to scrutinize all the expenses and determine which are necessary, which can be renegotiated, and which can be let go. Is your phone system fee inclusive of extra lines and extensions you don’t need? Are there marketing expenses or vendor costs that can be renegotiated and/or is their a different fee structure that will work better for your company? Think outside the box and the savings will add up fast!

It is still early enough to make changes that were not planned out in your original budget process. It’s always good to evaluate expenses to ensure that you’re getting the best product and pricing for your goods and/or services sold. With business processes returning to normal (whatever that means), now seems to be an optimal time to take a good look at where you are spending your money and if you’re getting the maximum return. Don’t throw good money after bad. 

Take-away: If you haven’t taken a deep dive cost-analysis on your business for quite some time, reach out to Brian or Scott at info@acceleratingcfo.com for a free diagnostic.

Brian Califano

Scott Margolin

Co-founders & Managing Partners

AcceleratingCFO