When it comes to finances a lot of us have a top-line orientation, which means we tend to believe there is no problem that more money won't solve. So rather than concern ourselves with controlling our costs, we focus on growing revenue. Such an attitude is very optimistic and positive: I do like the feeling that I can grow my way out of problems. There was once a time when Donald Trump was so far in debt that he had no possible way to pay it off - ever. So what did he do? He convinced his debtors to give him more money so that he could grow himself out of his debt obligations. Fortunately for "The Donald" and his debtors he was able to do so more than once. However, growing yourself out of debt and controlling your costs are two different things. I hope we all can maintain the optimism of being able to grow ourselves out of problems, but let's not forget that we are in business for profit. Profitable growth is the name of the game; to win you need to control your costs.
I recently spoke with an entrepreneur whose business has gone gangbusters this year. They have seen rapid growth, but have no idea where all thier revenues have gone. Fortunately for them, they can afford to hire staff to focus on costs. I recommend hiring a bookkeeper for your business - you can't begin to control your costs if you can't see them clearly! For those of you that would like to get a grip on your costs, but aren't ready for a bookkeeper, let me offer some simple steps that you can use now to help make your costs more visible:
- Gather your credit card statements, check registers, receipts, and any other transaction record for the last three months.
- List all expenses for each month.
Categorize the expenses.
- List your expense categories down the left side of a page, and then create three columns, one for each month. Compile this so you can see your monthly costs side by side.
This may seem simplistic, but visibility is a crucial step to understanding and controlling the costs of doing business. Once you have completed your list, highlight the areas that you can influence the easiest - your office lease or mortgage is going to be more difficult to reduce than your dining or entertainment expenses. Now that you've identified your expenses, do you notice any fat? Are you spending more money on non-value added areas than you imagined? You can't answer these questions without visibility, so start by getting clear on your expenses so that you manage your bottom line.
