In the first part of this series on increasing spa profit, we talked about the three components of finance that are under our direct control – revenue, gross margin and expenses.
In the game of business, these are the three variables we can generally manipulate easily. External factors, weather, competition, new product introductions and regulatory issues have to be dealt with as they come. The big three (sales, costs, and profit margin) are generally under our control. Making each move in the right direction is our goal. Let’s take a look at expenses.
In 1991, my wife and I were 3 years into our first company. We had 7 offices spread across the southeast. The older offices were very profitable, the newer one, not so much. But, we were paying the bills and making the mortgage – ~$5 million of revenue and 32 employees. While we weren’t getting rich, we were comfortable – until Sadam Hussein invaded Kuwait. That sparked (or aggravated) an 18 month recession where we came close to losing the business.
Our response was professional (at least it felt that way). Having spent 5 years at IBM and coming out of b-school, we quickly put in place a “Cost Containment Plan”. While the title was a bit grander than the size of the company, I believe we did do a very good job identifying how to save money, reduce unwanted expenses, and discontinue costs. We employed ideas from staff, bankers, suppliers and the University of South Carolina’s Business School. Here’s what we did – hopefully a few ideas you might find useful.
- Have a meeting- As goofy as this may seem on the surface, getting everyone together to announce what the purpose is is critical. I have found when everyone has a clear understanding of the landscape of where we want to go or what we want to do, you get much better input. We had series of meetings. The first was to get as many cost savings ideas on the board as we could. I am a BIG fan of the giant-sized Post-It notes – you can write on them, them stick them on the wall – literally wall papering the conference room. These keep everyone focused and helps stay on task. In any initial meeting my rules have always been to get ideas on the board – no need to prioritize or critique – just keep the ideas flowing. It helps if you facilitate and “grease the tracks” to keep folks from snipe-ing each others ideas. Just keep it moving!
- Lists, lists, lists – Again, a bit goofy, but taking all those ideas, prioritizing and categorizing allows you to now distribute, review and consider your options. We would provide a meeting summary and ask everyone to review – while scheduling a follow-up meeting. We would ask everyone to give careful thought to any and all ideas with the PRIORITY being “What Ideas Can We Put In Place NOW ” that will save us money.
- Follow-up – Lists are good, but very similar to plans. Without someone to guard against their demise, lists can often find themselves stuck in a drawer or in a folder on a computer. I have felt someone needs to be the “list manager”…meaning they had responsibility to make sure everyone did what they were supposed to and followed-up with enough lead time to keep folks from coming to meetings empty-handed or headed! The biggest component to Follow-Up is having the “After Party”, or the meeting after someone has consolidated the ideas. Here’s where you can:
- Assign responsibility
- Allocate resources
- Determine and notify of monitoring
- ID follow-up
- Implementation – While all this sounds and looks good, without implementation you won’t get results. Therein lies the benefit of the lists. Lists should be posted and each individual should have their own. Again, this all looks good and for those who don’t see the value, will think it’s “over-thinking” the issue. Well, I can tell you after seeing numerous companies – very small and very big – this works…may be a pain for those “shoot first” folks, but nevertheless, its the best process for getting the most done.
Alright, all this sounds good, but how do I cut costs and expenses?? I didn’t mean to ramble on about process, but the process will reveal ideas you would not have considered…therefore, it’s worth it. But, ideas…that’s right, ideas.
Ideas for Cost Savings
There will be a sub-part to this post where I am listing all the ideas from some of our cost-savings plans, but here are a few to get you started. Remember, expenses are just one of three things you should bee looking at.
- Staff expenses – In the 91-92′ recession, my wife and I cut our salary 4 times, then discontinued bonuses for managers, then cut managers salaries 15%. BTW – we asked the managers if they would rather take an across the board cut or lose a person on there staff…all voted for salary reduction. We discontinued temporary workers (completely), implemented a hiring freeze (no duh?), and banned OT for anyone who was hourly.
- Health – When our health program came up for renewal, we lowered the plan. I had always believed n the “Platinum” plan with all the bells and whistles – no more. Cut deductibles, copay’s, whatever you need. We also went from 100% employer paid premium to 90%.
- Telephone, office supplies, office cleaning, subscriptions, associations, et al. – anything and everything that showed-up on the income statement as an expense was exposed to scrutiny, change and evaluation. We cut-out LOTs of small miscellaneous costs. Again, making someone responsible for IDing these expenses, providing alternatives, and implementing change is critical.
- Advertising- Most advertising does not work. Yep, I’ll say it again….it doesn’t. I want to flush out some ideas that do in a latter post, but you should critically scrutinize ALL advertising.
- Travel, conferences, etc – For us (at that time) we spent a fair amount for a company our size traveling and periodically were attending shows, conferences, etc. We stopped all conferences and spent a lot of time driving rather than flying. Being a pilot I know there is great rationale for flying, but we just decided to drive…spending a lot of time on the phone in between cities.
I’ll list a few more ideas next time, but I have found that companies – even small ones – benefit greatly by sitting down and having a “jam session” to come up with creative ideas to cut costs. If you follow-up and make sure ideas are implemented, you can move the cost-containment program off your plate pretty quick. Though all of this sounds like a lot of work, 4-5 days of planning and discussing followed by a week of implementation will knock-out 80% of the projects. So, it’s worth a couple of weeks of time to decrease expenses by 15-30%? Yep, I think so!