Have a Lean Business

Have you ever tried to lose weight? If so your experience may have ranged from easy to difficult. When it comes to reducing costs a business may have a similar experience. By costs I’m referring to both product cost and expenses. Why do some businesses find it easy to reduce costs while others struggle and eventually stop trying?

Think Lean and Communicate It

Like losing weight reducing costs starts with a mindset. First, you need everyone on board, especially managers. Remember, their attitude is contagious and will likely be reflected by those they manage. If they are committed and believe in the process then this is passed on to their employees. Along with this, regular communicate within management and have management communicate with their employees. Communicating with managers serves as a reminder and keeps them on board, and nothing is worse for an employee than to be left out in the cold. Employees need to understand the goals you have. After all, they are really the ones that will make things happen, plus they also know things their manager may not know and can provide valuable feedback, input, and suggestions.

Have a Plan

Having a plan does not necessarily mean extreme detail. Rather, it means to have a basic structure of how you will reduce costs. For example, in the blog Why You Never Hit Budget one of things discussed is making use of the budget before committing to any expenditure. If you are going to have a lean business, then one of the key things you can do is create a working budget and check against it before spending. You may realize that the expense you plan to incur will put the company over budget. Then the question becomes, “Is this really necessary or is there a less expensive alternative?” Along with the budget or spending plan, identify specific things you can do to reduce costs by asking questions such as:

  • Can certain positions be eliminated by combining roles under one person?
  • Can inventory be reduced? (See Small Inventory – Big Benefits)
  • Can period costs like insurance be reduced?

For example, when was the last time you really looked at getting better rates for business and casualty insurance? I once had a client who thought he was locked in to the high rates he was paying, particularly for workers compensation. However, with a little effort I managed to cut insurance expense by 25%.

There are obviously many questions you can ask and your particular business will influence this. Whatever the questions two keys are:

  1. Think outside the box
  2. Have a plan, follow it, and use it to monitor your progress

Identify Cost Drivers

This is something many companies never consider. However, unless you understand what drives particular costs it will be more difficult to control them. Interest expense is a simple example. Are you paying interest on a line of credit that is being used because you have not controlled inventory levels? If so, then inventory levels are a driver of interest expense. If you are unsure how to identify cost drivers and nobody in-house does, then perhaps AimCFO can help. You can contact us at Contact.

Consider Outside Help

If you are stuck in the process of developing a lean business, then maybe someone from outside the company can help. Remember that when you are there every day it is easy to get caught up in the day-to-day and find your thinking somewhat stuck in how you have always done things. This is where the Part-time CFO or Controller services of AimCFO can help you.

Obviously this post is not so much a how to, but rather an overview of how to start the process of having a more lean business.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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