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Another great piece of advice from Sam Walton – creating an environment where you control your expenses (costs) gives you a great competitive advantage, particularly in a business that’s been going for a while.

One of the biggest areas of potential saving is what I call “creep.” This is where the budget line for a particular expense area is just increased by an “inflation amount” each year – generally between 5% and 10% in South Africa, for example. And once an expense is in the budget, it becomes a target to reach – ever notice how your credit card expenditure increases with the limits?

In reality, each expense line should be carefully examined when looking at budgets to see how and where it can be reduced or, at worst, contained. Look at implementing zero-based budgeting – it really can make a big difference.

Renegotiate supplier contracts wherever you can (office rents now would be a good example) and see whether you can find other ways to reduce each expense line, too – do you really need all the lights burning all day long?

Are you making the best use of your cash? Suppliers will often give generous early-payment discounts which more than offset the possible bank charges / time-value of money. This is particularly so for overseas-based ones as reducing their credit insurance / risk and DSO for foreign customers is good for them.

Encourage your team to find ways to save money, too, and reward them for doing so – if they see benefit, they will find ways. The use of the proverbial carrot, rather than stick, for managing expenses is the way here.

And remember, each small amount of expense saved goes straight to the bottom line – improving not just profitability but valuation, too, allowing you to be more flexible during tough times and giving you greater options for growing the business, as Sam Walton showed by turning a small discount store into the world’s biggest retail group in under 60 years.

Proactive control of your expenses is just good business sense.

 

#BusinessFitness #Business #CompetitiveAdvantage #Focus #GoalSetting #Management #ProblemSolving #Profitability #Strategy #Valuations #QOTW

 

Some of my other posts related to profitability that might be of interest: