Control Costs by Strategically Reducing Payroll Expense

OED Certifed Advisor Dana Komar spotlights the difference between slashing payroll and strategically reducing costs.



One of the most effective ways to reduce payroll is to minimize scheduling and reduce the overall number of people you employ. However, adjustments should not be done blindly as the wrong decisions could have a negative impact on your operation. The first step to make sure that doesn’t happen is to use past sales data to truly understand the demand patterns of your customers. If you have hourly employees, you need to know demand by hour. If your employees are on salary, it is sufficient to evaluate demand at a more aggregate level.

The next step is to determine the true capacity of who or what produces your product—whether it be a machine or a person. Don’t forget about machine downtime and employee personal time. Then using your demand analysis, schedule employees and machines operators so that their total production matches your expected demand. This will ensure you do not waste money on excess capacity, and that you have enough for the operation to run smoothly.

Reducing Account Receivables Puts Cash in your Pocket

OED Certifed Advisor Dana Komar gives one pretty solid way to build cashflow. We could all use a little more of that, couldn't we?
Ignoring your outstanding receivables can restrict you from having enough cash flow to properly invest in your company or to pay your vendors on time. This can earn you a reputation as an unreliable business partner or result in unnecessary spending on late payment fees. If this the case, you have to make sure you are not creating the situation yourself by allowing your customers too long of a collection period compared to your payment terms. There are a few things you can do to reduce the time lag between when your customers buy the product and when you receive payment, without wasting time hassling them.

For instance, the faster you invoice them after the order, the sooner their payment deadline will be. To make this easy on yourself, email your invoices rather than using snail mail. It is important to have the exact due date the invoice, rather than just the terms. Make it easy for your customers by allowing them to pay electronically and by credit card. PayPal is a secure convenient payment method and you can put a link right in your invoice email. Also, be sure to have clear penalties for late payments. Your vendors have them, so why shouldn’t you?

Is A Plan Enough?

OED Certifed Advisor Dana Komar discusses the need for planning, and the equally great need to revisit it to be sure it's as fluid as the world can be.

You have a plan…but that’s not enough to be successful in your business.
The only thing certain in life is uncertainty. How many times have you heard that saying? As a good business owner you know the way to manage uncertainty is to have a plan when it comes to all aspects of your business – strategy, marketing, operational processes, etc. Unfortunately, the reality is that only in the rarest of circumstances does your plan work out exactly as you want or expect it to. When this happens, it is very easy to let your pride take over and continue to forge ahead in the same direction you were going, even though it may not make sense anymore – like forcing a square peg into a round hole. This will certainly cause you to experience extreme frustration and discouragement, ultimately leading you to failure.

That is why simply having a plan isn’t enough. Your plan needs to be fluid and adaptable so that you can handle the unexpected as reality unfolds. The first thing to do is review your plan and ask yourself what could go wrong? How will you know if and when it does go wrong? You need to create observable measurements that you can use to monitor your progress and let you know if you are on the right track. Some examples are a revenue target, a budgeted cost, or a level of customer satisfaction. Come up with a list of adjustments you can make to put things back on track, depending on what could go wrong. This could include a list of alternative sales and promotion methods, other potential suppliers, or a variety of customer reward programs.

The most important things are to go through this exercise ahead of time and proactively review your progress along the way. Waiting until things go wrong to come up with a contingency plan increases your propensity to become frustrated and respond by sticking to your original plan no matter what. By preparing for a variety of circumstances, you will be in a better position to handle the situation as soon as it arises, which will allow you to maintain your momentum and focus. Just remember that in the end, it is better to be proud of your ability to adapt your plan, build on what you have already done and learn from your mistakes, rather than be proud of creating a plan that doesn’t work.

Improve the way things are done, and the savings rack up

OED Certifed Advisor Dana Komar shares insight into some of the most effective cost containment measures a small busines can take.
Improve constantly and forever every process for planning, production and service. Improve quality and productivity, and thus constantly decrease costs. ~William Edwards Deming


In a contracting economy, good business owners realize the need to quickly get costs in line with declining revenues in order to preserve their operating margins. Typically, their first reaction is to eliminate obvious unnecessary spending on supplies and ancillary items and to reduce payroll. However, after these steps have been taken, many realize that they just are not enough. But, how can they pull more cost out of their operation without destroying the quality of their product? The answer is to focus on improving processes and increasing efficiency which will ultimately result in increased margins, production capacity, and product quality. This approach will also help owners surgically reduce resources spent in certain areas rather than blindly eliminating spending without truly understanding the impact it will have on the operation.

So, how do you do this?

By using a systematic approach to analyzing current processes, you will find opportunities to reduce the amount of time and money that goes in to producing your product.

First, assemble a team to perform this exercise. It’s important to have outside perspectives as well as insight from those directly involved in the processes. Therefore, including people from different functions and levels in the organization is beneficial.

Next, have the team map out the individual processes employees go through to produce the product, step-by-step. Are there steps that are taking longer than they should? Are they wasting time waiting, searching, or walking? Are supplies being wasted? Are they performing steps that really don’t need to be done at all? Are steps being repeated?

Now, list out the reasons why time and efforts are being wasted or why things are taking longer than they should. What is really causing these things to occur? Don’t assume that the most obvious explanation is the answer – keep asking why to uncover the true root cause of the issue.

Next, determine how to fix the root cause of the issues so that they don’t happen again in the future. Don’t just come up with a way to band-aid the problem “for now” – that’s not good enough.

Then, prioritize all of your fixes, starting with the ones that will give you the biggest bang for the time and effort it will take to make the changes.

Finally, get to work! Develop and execute action plans to implement the changes that are needed. Make sure each plan has an owner and a deadline to ensure accountability and completion.

After the initial exercise is over, encourage all employees to adopt this type of thinking and process analysis into their daily work. That way you will continuously build on previous improvements, thus continuously enhancing your operation and reducing costs.

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