My brothers and I were digging to China when we were interrupted by the call by our mother for dinner.
Digging holes is something that boys do. In business, however, when we dig holes, unless we are in the construction business, they are usually not good. I have dug myself some holes as a businessman over the years. The biggest hole that I dug was several hundred of thousands of dollars deep. These types of holes don't happen overnight, they take lots of planning and many hours of making mistakes, and sometimes years to get out of.
The most common holes in business are profit holes. Profit holes are those costs that build up over time and eat away at the owner's profits. According to the National Federation of Independent business in the U.S., 60 per cent of small businesses are either not profitable or are only marginally profitable. To be clear, the profit in a business is what is left over after paying all of your expenses.
In a small business there are many expenses - the cost of goods, labour, insurance, supplies, utilities, computer equipment and the list is almost endless it seems. Unless we are careful operators of our business, we may find ourselves among the 60 per cent of businesses where the owners receive very little to speak of in terms of money at the end of the day.
One of my clients, we will call him Paul for the sake of this story, owned a business that he ran for several decades. As he was thinking of selling the business he realized that new owners would probably like a business that was a little more profitable.
Paul started examining his income and expense statement with a fine-tooth comb.
He discovered several areas in which some of his costs had crept up over the year. In one case, he found that he had originally employed a cleaning company on a contract for a small job, for $50 per week. Over time, they had gradually raised their prices to $100 per week. He consulted his employees concerning this job, and was told that they thought that they had time to do that the contractor's work as he was only spending 15 minutes a week in the building.
Profit hole filled: $5,200.
Paul kept digging. One day he got a call from a service provider for debit machines.
They told him that he would save $400 per month if he switched over. Paul didn't switch but he used that call to ask his current provider to match their rates.
When they agreed, Paul saved an additional $4,800 being lost through a profit hole.
When Paul plugged these two profit holes, he saved himself $10,000 per year.
For a small business owner, $10,000 a year can be very significant. Not only did Paul enjoy that money immediately, but he increased the value of his business at the same time. Potential buyers always want a profitable business.
When you are looking for ways to reduce our expenses and plug profit holes, we need to look through each and every area of the business expenses. We must ask ourselves how we can reduce our costs in this area. In my book Profit Yourself Healthy, I identified 107 different ways that small business owners can reduce their expenses.
Sometimes you can eliminate an expense. Often by putting the product or service out for tender again, you can lower your costs. The trick is to look at the largest expense areas first and figure out ways that you can create efficiencies.
The longer we have been in business, the more profit holes we can find.
Dave Fuller is the author of the book Profit Yourself Healthy and a professional business coach. Email Dave with your profit question dave@profityourselfhealthy.com
