The Details Matter in Business

How well do you know the details of your business’s expenses? Just as in your personal life, the details matter in business.

A Visual Aid

“Beware of little expenses; a small leak will sink a great ship.” – Benjamin Franklin, US Founding Father.

What Franklin is saying is that it is not necessarily the big expenses that cause the greatest harm but rather the cumulative effect of small and perhaps seemingly insignificant expenditures that ultimately create more problems. Using the ship analogy imagine a ship hits an object in the water that causes significant damage. We would almost immediately be aware of this and start taking action to overcome the damage. On the other hand, imagine that same ship has not been maintained properly. As a result it has numerous areas that are leaking slowly but steadily. Get enough of these leaks and it can become overwhelming and be even more difficult and time consuming than one larger leak. I recall as a child being in a canoe on a lake by myself. The owner called to me to paddle in as the canoe was not safe. When I got in he pointed out that the canoe leaked slowly but steadily. Without me even being aware it was happening a rather significant amount of water had entered the canoe. Had I stayed out long enough the canoe would have eventually sunk.

What Does a Boat Have to Do with Business?

Just like a slowly leaking canoe will eventually sink, a business that is gradually losing cash through dozens of small expenditures can also be sunk. That is why you need to be aware of just how and where your business is spending. You may think you have a handle on this, but expenses have a way of creeping up on a company. Before management knows it these expenses that seemed so small at first seem to suddenly add up to a rather large amount of money. Yet the reality is it wasn’t sudden. We really need to understand this idea of keeping tabs on the details of spending as the details matter in business and can be the difference between making or losing money or even staying in business.

Broke Business Man

Ask the Right and the Hard Questions

As a business owner or manager you owe it to yourself to ask the right and the hard questions to get to the bottom of things. Monitor your spending and track the trends. Are certain expenses growing over the prior year, quarter, or month and there is no real justification for it. For example, if last month you had sales of $200,000 and cost of sales of $105,000 and for the same month last year the sales were $180,000 and cost of sales were $90,000 you might be thinking this was great as sales were growing. However, when you consider that last year the cost of sales was 50% of sales and this year it is 52.5% you might want to do a little digging. Why was the cost of sales as a percentage of sales growing? It may be okay if you have changed product mix and this is an expected event. However, these seemingly little changes can get out of control. Here we’re looking at what is typically one of the bigger items but the same thing happens in smaller areas of expenditure. For example, it is not unusual that office expenses like supplies, printing, etc. can grow gradually over a period of time. In fact, the growth can be so gradual that we fail to notice until it becomes difficult to reverse the trend.

Are you keeping a close watch on how you spend money in your business? Remember that the details matter in business and little expenses can grow before you realize it if you are not diligently monitoring things. It could be considered the business version of death by a thousand cuts.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.


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