Leaky faucets

The Water Task Force came through the neighborhood several months ago to install their “smart” meters. This ended our days of paying a flat rate with unmetered water and started our concerns about the little leaks around the house. We realized that a couple of leaky faucets create a steady drip that adds up to gallons, and those gallons of water will find their way onto a higher-than-already-too-high utility bill. So in the next few days the water pump was fixed, one of the toilets got a new float, and the bathroom sink drips were plugged.

Leaks in your business can add up over time and turn into a lot of wasted dollars. Utilities are just one way you can “plug” some leaks through more energy-efficient equipment and practices. [As I write this on my laptop in the dark at 9:32pm because of another CUC power outage, I’m reminded of the many drips over there that have conspired, over time, to give us the service we have come to expect.]

It isn’t just the drips that cost you money, but all the inefficiencies that cause you to spend more than is necessary to operate your business and produce a profit. Leaks can also be found in old or poorly functioning equipment and tools you use to operate your business, the lack of maintenance given to your equipment, poor productivity of your workforce, the lack of effective accounting or monitoring systems, poor record keeping, your strategy, structure or operations, shipping methods, packaging and inventory tracking, shrinkage from theft or poor storage, paying for ineffective advertising, frivolous legal expenses, or high medical cost from unsafe conditions.

All of the leaks in your business add up to a lot of wasted dollars that drain the bottom line. Let’s take a look at some ways you can plug a few of the leaks. Many of your big leaks will come from human inefficiencies. One study estimates that people waste over two hours in an eight-hour workday. That means over 25 percent of your employees’ time is spent doing something that does not contribute to the growth or maintenance of your organization, and that time is sometimes used misusing other resources or assets of the business (i.e. surfing the net, driving a vehicle to do personal errands on company time and gas, etc.)

Often, employees don’t intend to waste company time, but are victims of ineffective micromanagement practices that don’t allow them to take the initiative to make improvements. “People leaks” can sometimes be remedied by being better organized, using time management techniques, effective training, holding people more accountable for results, and offering the right incentives to get individuals moving in the right direction.

When considering the leaks that come from the “things” in your organization, you must divide expenses into two categories: strategic versus non-strategic costs. Strategic costs are those things that clearly bring in more business and improve your bottom line, and non-strategic costs are everything else; which includes administrative costs of all kinds.

An analogy would be taking a boat ride to another island and halfway to your destination you discover that you have a leak in the boat, and your fuel is running low. You have to make some decisions that will allow you to stay afloat, so you would focus your attention on plugging the leak, carefully monitoring your fuel supply, and throwing any non-essential things overboard to reduce your weight and drag on the boat. The boat, fuel, and supplies needed to plug the leak would be your strategic cost, while everything else that contributes to the overall weight without helping you stay afloat, would be non-strategic costs. The problem with most businesses is that they cut the strategic costs by throwing away the remaining fuel, ignoring the leak, and maintain, or even increase the non-strategic costs that will weigh the business down even more.

Create a simple cost report by dividing all of your expenses into two categories, and then follow this simple, yet powerful concept that will do more to increase your profits than just about anything else. On the strategic costs side of your ledger, plan to outspend your competition in good times and bad. This can include things like effective marketing, sales expenses, and other things that generate more sales or improve your staff’s ability to perform). For the items on the non-strategic side of your column, your objective is to ruthlessly cut all non-strategic costs to bone.

Now, this may seem like common sense, but 95 percent of business owners and managers do not practice it, and that is why it can give you a competitive advantage. By plugging your leaks and improving your strategic costs, you will move faster and farther ahead than your competition. When better times eventually come, you will find your business has not only survived the rough storm, but will also be in a better position to take advantage of opportunities that open up.