Fixed or Changing?

You probably have heard the line from Gertrude Stein, “A rose is a rose is a rose” which we take to mean “things are what they are.” For example, when traveling from destination A to destination B, A will remain A and B will remain B. How we travel from A to B may change, but we are still trying to get from A to B.

What Does This Have to Do With Business?

In business it is important to know what is fixed, what changes, and what seldom changes. An unchanging aspect for business would be something like an income statement. While the numbers on the statement change, the income statement is still an income statement. Taxes are a pretty constant aspect of operating a business. On the other hand, how those taxes are determined may change due to a number of things. Some of that change will be statutory (that is government determined), while other change may be driven by the individual business. While the millage rate for personal property tax is set by government (something that changes occasionally), a company has a degree of control of how much inventory is on hand at the beginning of the year (that changes frequently).

So, here is the point. Know what is fixed or changing. By knowing this you can quit worrying about what is fixed or out of your control and focus on what you can changes.

Things You Can Control

A business has a high level of control over such things as inventory levels, insurance expense, office supplies, etc. Grant it, many companies don’t act like they do and let a cost seemingly operate free of any deliberate effort to contain it, but that still doesn’t change the nature of the cost. That is, it is still something that changes and that change can be greatly influenced by management and employees. This may sound obvious, but I’ve seen companies insist that a particular cost was out of their control when in fact that simply was not the case. In Have a Lean Business I mentioned a client who really believed the amount he paid for business casualty insurance was out of his control. Wrong! As it turned out it was possible to cut this by 25%. This is an example of confusing fixed and out of your control with changing and very much under your control.

The Significance of This

This idea of fixed (unchanging) versus occasionally changing versus frequently changing is important because it is a start toward identifying what you can control and improving profitability and cash flow. A word of warning is in order however. Like the example of the insurance, don’t jump to conclusions too quickly as to what is fixed or changing.

Think about whether your company has gotten in a rut as to how costs are viewed. Are there some things you have thought unchangeable that perhaps really can be changed?

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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