"I would love to scale my business, David. But I am really struggling with cash flow issues right now."
I hear this every single day from small to medium business owners. They have a great product and a loyal customer base, yet they still can't seem to make ends meet and cash flow is always a concern. While it isn't uncommon to have cash flow issues early on in a business, there are many things that you do to to keep on top of your overhead costs and avoid these issues all together.
Here are my top seventeen things that you should should look at when wanting to reduce your overhead costs in your business.
Run a full benefits report (1-2x/yr) to get the true cost of your staff. Include items like salary, bonuses, employer share taxes and HR compliance costs as well as the $ value benefits.
Set up a compensation model that is tied to results not to time served.
Restructure your bonus systems. Bonuses and benefits are not "rights" but tied to performance (both individual and company). Any bonus that is regular and expected soon becomes "base". When it comes to creative and interesting work let intrinsic rewards rule vs. monetary rewards.
Trim excess staff. Most service and administrative departments can be cut by 25% with no impact on quality of work. Many can handle a 33% cut with no significant negative impact.
Stop the "make it work" culture. The best way to do that is to have full plates that force staff to prioritize and leave lower level items undone, or done good enough.
Cut wasteful meetings (or at least cut time in half). Go into each meeting with a clear cut goal and agenda in writing.
Get over your fear of firing people. Low performers cost too much money to keep them on the staff, so cut them loose as soon as you realize it's a poor fit.
Scrutinize ROI and if it's high, do it. This goes for just about everything.
Consider leasing vs owning. Leasing makes sense in a lot of different situations so don't make owning your default.
Consider customizing off the shelf vs custom creating. Don't waste time or resources reinventing the wheel.
Consider hosted solutions vs proprietary.
Negotiate HARD! (On price AND terms). Learn the art of negotiation and use it often.
Be careful not to scatter your resources too wide. Focus on your fewer and better to keep on top of costs.
After a period of big growth and profits, be careful to revisit R&D costs and make decisions based on updated data.
Get clear on all the costs of inventory: cost of capital; storage; insurance; etc. This is often overlooked but plays a big part in your bottom line.
Consider selling off or writing off old inventory.
Set optimal inventory levels and stick to them. (Find ways to safely reduce.)
And last but not least ask yourself the following about each and every expense that comes across your desk: "If I eliminated this cost would I really lose business?" If the answer is no, then don't spend the money.