Category

Accounting

Too much material when you're done?

Shrinkage

By | Accounting, Cost Controls, Finance, Time Management | No Comments

Eliminate Waste!

“To me an unnecessary action, or shot, or casualty, was not only waste but sin.”

 

T.E. Lawrence (1888 – 1935)
The real-life “Lawrence of Arabia”

 

Last week I built a wood shed in my back yard. It’s nothing extravagant and only holds about a cord of wood. As I started building I realized that I had not adequately drawn out my plans.

 

The result: Wasted materials and wasted time.

 

It’s fine now. I got it put together and ready for our first cord for the winter. However, I could have saved myself about 30% of the time I spent building it and saved myself 20% on materials. I also have some materials left over that I know can be good for something besides burning it to heat my home.

 

Every day, businesses waste time and materials. Material lost between product and sale in accounting terms is called “shrinkage”. (By the way – this is not the same shrinkage Seinfeld joked about.)

 

After completing a project or a batch – look around at what is left over. Create a plan to reduce the waste.

 

If your business is about service, how can you complete it more quickly?

Don't Bleed to Death

Bleeding to Death

By | Accounting, Cost Controls, Finance | No Comments

 

Don’t Bleed to Death

“For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?

Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him,

Saying, This man began to build, and was not able to finish.”

 

Luke 14:28-30 (KJV)

 

If a man is bleeding to death do you immediately give him a transfusion or should you stop the bleeding first? Most of us would move directly to find a way to stop massive bleeding before we try to get more blood flow into him.

 

What’s funny is that often in our business when we don’t have the cash-flow we need, our immediate response is to reconsider a transfusion rather than examining the open wound. So are your money problems because of poor marketing or do you need to re-evaluate your expenses? 
Here are a few “leaks” to verify:

  1. Labor – Do you have a staffing model that ties labor hours to production/revenue? How often are your staff going into over-time? Are you leveraging your own efforts by delegating properly?
  2. COGS – Do you know exactly how much of your raw materials go into your product? For restaurants this means portion control and strict recipes. For a  contractor this means knowing how much material will be scrapped and how much of it you can “up-cycle“.
  3. Taxes – When was the last time you had a CPA check your taxes and not just prepare them? If your CPA or tax preparer is only preparing your reports and returns and not suggesting tax savings, I can get you in contact with one who does.

When I am evaluating a client – these are the first places I look for leaks.