The age-old rule of how to turn a profit--reducing expenses and increasing revenue--is easier said than done in any age, but it's particularly hard these days. Nevertheless, standing still and not taking action will create business ending results. We can't build more houses for you, but we can give some ideas you can implement now to reduce expenses.
Cash Flow and Trips to the Bank. It's long been common for dealers to drive to the bank to deposit receivables checks from builder customers, but that's before check scanners came onto the scene. These are usually supplied by the bank for a minimal fee. Each check received from the builder is deposited directly into the bank upon scanning by individual check or batch, saving you time and money. Note: Some limitations apply. In a recent visit to a dealer their limit was $250,000 per check and $1 million per batch.
Vehicle Efficiency. Installing a monitored GPS system in your delivery trucks will provide statistics and reports that will allow you to better manage your deliveries. Dealers often overlook the efficiencies gained by installing such a unit in a sales person's vehicle. With it, a salesperson can input the many address stops for the day and the GPS will provide the most efficient route. Decent GPS units now costs between $100 and $200 and can be moved from vehicle to vehicle.
Wasted Labor. Hardware stores that price each item instead of providing only a price on a bin label are wasting labor hours. Furthermore, if you are only using pricing bin labels and are auditing the accuracy of your hardware vendor, I feel you also are wasting labor. One of my clients had two full time people checking in their order on a weekly basis and they found that they had a variance of less than $1,000 per year. They were paying many times this for the salaries. They then switched to checking the order for accuracy only once a quarter. If your hardware vendor does not ship correct products and quantities, find a new vendor. Your current one is costing you money.
Underutilized Labor. Managers are responsible for managing their direct reports. Do you know where your direct reports are focusing their efforts? Consider having them track their time for a week and reporting back to you as to how they spread their time. Some companies require a daily or weekly summary via e-mail so that they have an electronic record. As a manager, you must decide whether the activity adds value. Ultimately, you must decide whether the employee adds value. It is a tough decision to move people, but I feel that poor short-term choices of underutilized labor can drain a company in a hurry.
Accounts Payable Streamlining.- It cost about $15 to $20 at the typical yard I visit to cut, sign, and mail an AP check. Determine what it cost you per check by tallying your AP salaries and allocation some expenses like IT and office space. Then divide this number by the number of checks written annually. The number will vary. Next, consider single-source vendors for office supplies, coffee, floor mats, service of trucks and lifts, and other expenses. Don't discount the consolidation of inventory products as well. If you can reduce your check count by 50%, you will increase per-check allocation fees by 50%, but you will free up AP and the check signers to focus on other value added activities. Automatic bank drafts and credit card purchasing will also eliminate the number of checks. Just remember that these transactions also require time to post and balance.
The Flip Side Credit Card Fees. Past surveys by ProSales made clear that dealers don't like accepting credit cards for payment. But in accounts payable, you are on the other side of the table--you are making outbound payments instead of collecting on accounts. Consider using a "cash back" type credit card for purchases like office supplies, outsourced payroll fees, vehicle maintenance, and inventory products. Yes, if your vendor will allow you purchase your inventory on a credit card and you can save 1.5%, I say, "Load the wagon!"
Janitorial Services.- If you are using janitorial services five days a week, consider moving this to two days or one day a week and getting your staff involved. An employee should not be too proud to take out the trash or keep their working environment tidy. It builds character and makes employees aware of their environment.
Utilities.- By now, all dealers should have programmable thermostats. If you have overlooked this, install one now and begin experiencing reduced energy savings. Don't keep lights on in areas that are not used and replace incandescent bulbs with energy efficient bulbs. Install motions toggle switches in bathrooms and low traffic areas. These switches will turn the lights off after no motion for a period of time, for example five minutes. If you are running a mill and charge a fee for custom cutting of board or planing of lumber, make sure you are charging enough for your labor. And don't forget about the cost of electricity used to run large equipment. Consider increasing the customer fees to offset the costs.
Outsourcing of Information Technology. Have you considered using an outside vendor to manage your network and systems? My experience shows that by having a 100% managed network from an outside vendor, you can reduce by 75% the costs directly related to IT salaries.
The Unexpected. During employee evaluations or customer interviews, I always like to end by asking: "Are there any questions that you were expecting me to ask that I did not ask?" Use this when meeting with your employees in similar fashion, asking "Are there any expenses that you thought we should reduce, but we have not discussed or taken action?" You might be surprised with the feedback from your employees.
Chris Rader is a consultant based in Lafayette, La. Contact him at email@example.com .