For most business owners and managers maximizing revenue (offense) and minimizing costs (defense) is business 101. Although it sounds simple, it is remarkable how many business owners and executives focus solely on offense and forget all about defense. Many people lose sight of the fact that with every dollar in new revenue, only a fraction is added to the bottom line. Conversely, every dollar reduced in operating expenses contributes 100% to the bottom line.
For good reason, we celebrate the sales rep who brings in a $10,000 account, but when was the last time we celebrated the CFO or controller for cutting $5,000 in telecommunication, waste management, office supplies, shipping, or merchant card services expenses? All things considered in the analogy above, the CFO or controller likely made a much more meaningful impact to the company’s profit. All $5,000 of his/her cost savings contributed to profit, whereas the $10,000 sale likely only contributed $2,000 or $3,000 after commissions and cost of goods sold are considered. Plus, these cost-savings will continue to deliver incremental profit to the company year-after-year for the life of the business.
Please note, I don’t advocate renouncing your praise of sales people for bringing in new sales. At the end of the day, if it wasn’t for sales, there wouldn’t be a business. It is a lot harder to make a sale than to cut a cost, and it should be celebrated. The point of my analogy above is to show that since cost reduction initiatives have such a direct impact on overall profitability, it is worthwhile to invest as much interest and energy on improving your defense as you do on your offense.
If you are a key financial decision maker, I encourage you to quantify your savings and reward yourself with the incremental profit that you have brought about by following these simple steps. If you are a CPA or an independent bookkeeper, I urge you to use this information as incredible value-added advice that can help your business customers increase their profits. If you are an employee, I encourage you to frequently remind your boss how much you have added to the company’s profit, and add it to your list of accomplishments. Saving money is critical in these uncertain economic times and perhaps it’s time we celebrated defense as well as offense.
Adam Pflaumer is the Lead Auditor for Lost & Found’s Electronic Payments Processing Division.