Two of our favorite words at B2B CFO® are goal clarity. Accordingly, our expense reduction services start with your clear and concise goals about where you are taking your business in order to help you manage all of your company’s expenditures.
With our expense reduction services our first approach is to identify every activity cost that is directly driven by your revenues. In many cases, these line items or expense categories will be your cost of goods or services sold. Cost of goods/services is by far the most critical group of expenses to monitor but the most difficult to manage. That’s because expense reduction is not a matter of simply reducing costs. Instead, 1) work processes may need to be significantly re-engineered or entirely eliminated and 2) vendor/supplier cost reductions may need to be creatively re-negotiated. In both cases, we have proven track records to help you accomplish both of these strategies if the underlying costs are out of hand.
For all of your costs directly driven by revenue, our expense reduction specialists analyze how those costs or activities behave as sales change and we develop meaningful reporting tools to monitor those cost drivers. Our expense reduction specialists can develop daily, weekly, and monthly reporting to compare planned with actual activity drivers. Such reporting helps us to figure out the root cause of the expense problems and take action immediately.
Our next expense reduction specialists approach is to understand the purpose of all of your fixed costs. We also determine which fixed costs are discretionary and which ones are non-discretionary. In this exercise, we can 1) determine which costs if any can be pared back, 2) identify which costs may not be in alignment with your core business infrastructure, and 3) help you develop a strategy of evaluating 2 to 3 fixed costs per month and how to take action if these costs should be reduced or even increased if they can have a positive impact on earnings and cash flow.
After our expense reduction specialists have analyzed your direct and fixed costs, we can take your sales projections and model your business over the ensuing 12 to 24 months. Afterward, each month, we compare your actual costs and actual cost drivers to those planned in the business model. We help you to evaluate the significant negative variances between actual and plan and assist you in carrying out corrective actions to bring costs back into line.
The modeling described above also allows our expense reduction specialists to calculate your break-even point in terms of units sold, dollars sold, hours billed, or any other revenue driver applicable to your business. This insight helps you to know your minimum sales goals by day, week, month, and even by year.
Our part-time CFO partners also help you to create a plan to build your infrastructure as you anticipate revenue growth. Large dollar purchases for fixed assets cannot just happen. Instead, such outlays need to be planned ahead of time so that bank financing can be properly secured. Not only do we make sure these fixed asset additions are in alignment with your strategic goals, we make sure we understand how these purchases will impact your cash flow.
We generally do not think of principal and interest payments as being expenses. In some industries, however, debt service is one of the largest monthly outlays after cost of goods/services and compensation costs. If you are looking for a way to accelerate debt reduction, through financial modeling, our part-time CFO can pinpoint how much cash you need to retain each year that can be used toward this accelerated debt reduction.
Many of the steps above may seem daunting for you and your staff to carry out, but as your part-time CFO, we can make sure your expenditures are in line with your clear revenue goals