Managing Expenses = Managing Your Business

I have never walked into a machine shop and seen "ugly" parts. I have never spoken with a shop owner who has told me that he has lousy customer service. I have never heard an owner tell me he didn't want to have new machines to run.

All of those things are great, but are you managing your expenses as well as you are managing your customers? Do you have a handle on which expenses are too important to cut and which ones can be reduced or eliminated? Making great parts is important, but making a profit will help keep your business running.

More important than any one customer or part is how you are managing and growing your overall cash flow. Your cash flow is basically every dollar that comes in from selling and goes back out in the form of expenses, which include salaries, rent, machine costs and other expenses.

One of the worst mistakes a company can make is to put off paying bills as long as possible while its income is slow. Ask yourself, "What kind of service do I give to slow payers?" One of the ways to reduce this load is to determine which collectors are willing to negotiate a longer payment term and to work with them as you rebuild the business.

You don't always have the time, but it is important to have a handle on every part of your operation and improve procedures where you can. Analyze how the orders and the product are moving from a customer's first call to the part's arrival. As you go through this process, you will better understand where the unnecessary steps and bottlenecks are, and you can work to replace them.

Employees are usually the most important, yet the greatest expense to a company. Get them involved in helping cut expenses in the organization.

• Encourage your employees to focus on efficiencies in the office. These can be simple ideas about saving power or larger “green” initiatives.
• Involve your staff in cutting the cost of employee benefits without compromising the quality or scope of coverage. There may be benefits that are less necessary, and employees might be willing to sacrifice them for the health of the overall company.
• Reduce training costs by providing incentives for employees who are willing to upgrade their skills at their own expense.

Determine your ideal number of employees by comparing your needs during your slackest times with your average days. Staff for your minimum needs as long as that level will not compromise service. It's less costly to pay overtime, or bring in temporary help during peak periods, than to keep unnecessary employees on the payroll.

These are the costs that are under your control, but you also have to be aware of the costs that you cannot control. As you may remember from my column last month, the Chinese government is quickly making changes to its manufacturing policies.

China's parliament adopted the Enterprise Income Tax Law, which sets a unified income tax rate for domestic and foreign companies at 25 percent. Previously, the rate had been 25 percent for domestic and 15 percent for foreign companies entering China. China's income tax is the result of new requirements associated with its entry into the WTO back in 2001. You will want to be aware of this if you are planning to sell into China or have customers who are sourcing globally.

Managing your expenses is not impossible—it just requires research, organization and planning with a willingness to better understand the market globally. With some of the tips outlined here, shop owners can make significant strides in keeping their company's expenses more manageable.

Mitch Free is president and CEO of MFG.com, Atlanta, Georgia. He can be reached at (770) 444-9686, ext. 2946 or at mfree@mfg.com.