What Are We Saving Money On Right Now?

What Are We Saving Money On Right Now?

Person calculating expenses from receipts HLH“You must gain control over your money, or the lack of it will forever control you.” – Dave Ramsey

If you aren’t eternally vigilant about your expenses, they will creep up. It’s a silent and deadly law that makes Process Improvement a necessarily ongoing endeavour. But sometimes events come up that blow-up expenses and leave a clean slate behind. We’re in one of those events now. 

Entertainment and travel are good to do. They feel good, build your business in the long term, and the staff love them. But they’re expensive, and the trips creep up. Soon one necessary trip a year has become five trips a year.

This pandemic has brought layers of difficulty. However, a bright spot is that it is forcing us to quit – cold turkey – some of the novelty expenses that we’ve baked into our budgets.

 

Entertaining 

Morale matters, now more than ever. Across Alberta, we’re sorely missing the staff functions, get-together nights, and catered lunches we once took for granted. 

Some entertainment spending, like staff events for your front-line team, is important. HLHSome entertainment spending, like staff events for your front-line team, is important. We should still spend those dollars, hard as it may be, because you need your team to be energized and motivated. If your office hasn’t opened yet, you can try creative ideas like sending out electronic gift cards for delivery services and eating together over video. Or, have the team meet on a patio where it’s safer to interact.

On the other hand, now is not the time to tap the expense account. Dinners out, hockey games, and other management perks should not be a priority for a long time, and it will be our choice whether or not to indulge once life returns to normalcy.

 

Travel: Numbers Don’t Lie

pie graphs showing different between average business spending on travel and profit airlines make from business travellers HLH

The average business spends about 1% of their revenue on travel. While that fluctuates a lot across industries, even half a percentage point matters in an era with razor-thin net profits.

More interesting is that, while business travellers make up 12% of airline passengers, they rack up 75% of airline profits. Business travellers are more likely to pay full price, take the last-minute fare, and splurge for the exit row. It’s the boss’s money, after all.

Airfare is just the start. Throw in car rentals, meals, hotels, shipping, cell phone bills, tips, and the myriad of other costs that come with it. Not to mention the costs few people take into account: the productivity lost, directly and indirectly, from a manager being out of the office and then playing catch up once he or she gets back.

Travel often pays off in training, acquiring customers, or growing your brand. But it won’t hurt to take a year off and inject that money into cash-starved operating budgets. And once we can travel again, we can evaluate the habits we built into our businesses and decide how much, if any, we want to go back to spending.

 

The Bottom Line 

The elephant in the blog is that we know too much travel wastes money. Some travel is vital, and we’re feeling the sting of losing it right now. But let’s talk about the “extra trip” or two that aren’t really necessary.

 A lot of waste happens at the top. When you’re the boss, it’s easy to let the trips add up because they offer something we can rarely get in our office: pure focus on the bigger picture, and the promise of a big leap forward. 

2020 has been an intervention. For many companies, it’s a (short-term) cost savings wrapped in a much larger problem. We know that a global pandemic is not the present we wanted to receive, but it’s what we’ve been given. As managers, let’s decide to use this as an opportunity to master the art of Lean living.

              

References:

https://www.investopedia.com/ask/answers/041315/how-much-revenue-airline-industry-comes-business-travelers-compared-leisure-travelers.asp

HR in the Age of COVID-19

HR in the Age of COVID-19

woman having a video meeting with her colleagues HLH “At the end of the day, you bet on people, not on strategies.” – Lawrence Bossidy

In the last few months, your team has probably surprised you. Some reacted to this crisis in unexpected ways and others have risen to the occasion with remarkable purpose and clarity. 

Now, and in times ahead, you need to nurture the bonds that are holding your business together: you need to take care of your people. And, to do this well, a strong HR group is vital. From safety standards, to reassurance, to a sense of community, well-deployed HR will help you get through. 

 

Adapting Your Culture 

HR has always focused on safety, but COVID brings a whole new set of safety expectations well above last year’s standards. Now, keeping your team safe is more than merely good management; it’s essential for both them and your business.  

build a culture of transparency and disclosure, document your business processes for COVID prevention HLH

If COVID-19 sweeps through your business, you lose on many levels. The way to avoid this is to build a culture of transparency and disclosure. 

Take the time to document your business processes regarding COVID prevention and control in the workplace. Don’t wait until an employee gets exposed or infected – we’ve already seen how quickly those consequences can get out of hand. 

If your team knows exactly what will happen if they’re exposed (whether they come back to work after testing or after a negative result, for example), it will make it easier for them to disclose any potential exposures. And you need to know about those exposures to keep your team safe. 

 

Morale Matters 

COVID has been an emotional and—for those scrambling to keep their businesses afloat—intellectual rollercoaster. And it’s not nearly over.

build your community HLH

You’re exhausted, and so is your team. One of HR’s urgent tasks this year is to watch for signs of staff burnout and act to remedy it. 

In a time of isolation, the workplace can offer a valuable sense of community. You’ll need to enforce physical distancing in the office, but that doesn’t mean you can’t build up the connections between your people. 

Take the time for physically-distanced events. Include yourself, even if “the boss” hasn’t always joined in. Don’t be distant; be present so that they know you’re in this with them. 

Listen to their concerns. If they have fewer concerns than usual, talk to them about it. Anxiety is running high right now and we need more communication rather than less.

 

The Future of Hiring 

The COVID crisis has had the side effect of accelerating the digitization of our workplaces. The explosion of e-commerce, remote workspaces, and having to do business without travelling will have real implications for how we hire going forward. 

Accelerated digitalization means more machine learning. In other words, the easy stuff is being done automatically or remotely at a rapid pace. Competing post-COVID will focus on the abilities that computers don’t have. Expect future hiring to be about skills and adaptability more than ever before.

 

In a recovering economy, business survival is about efficiency and innovation: the company that can adapt to new footholds will stay on the mountain. It will be the managers who have invested in their people that stand back and watch their teams confidently scale the cliffs ahead. 

 

Track Your Cash Better, Part II

Track Your Cash Better, Part II

person holding phone with calculator on desk HLH“Number one; cash is king.” – Jack Welch

Alberta’s economy is in an ocean of hurt. At times like these, cash is the life preserver that will keep your business’s head above water.

Last week we talked about why you should have a 13-week cash flow forecast. Now let’s build the thing and dig deeper into what it can do for you!

 

Structure

The beauty in this 13-week forecast is its simplicity. It forces you to focus on cash. Cash is the lifeblood of our businesses, but we frankly don’t think about it enough. No matter how big and complex your business is, knowing how much cash you have (and will have) in the bank is typically a simple affair.

Break out the spreadsheets, graph paper, or whiteboard. The horizontal X-axis is your “Reporting Period.” Typically these are weeks, so give yourself 13 columns.

The vertical y-axis should be labeled “Reporting Categories.” It’s your call how deep (or shallow) you want to go. For expenses, usually, a few categories (labour/ cost of goods/ utilities) will account for 80% or more. 

Revenue is simpler. When you designate those rows, make sure to account for A/R and (if it applies) the % of bad debts you tend to have. A lot of cash is lost in either negotiating for late payments to be made or losing them entirely.

Remember: this is about cash. It’s not about how much you invoice or the exciting new contract around the corner. This is cash in the bank.

Fill in the 13 weekly columns. Inevitably, you’ll be speculating by the end. These are your weekly forecasts. 

You can go deeper into expenses if you want by looking at the 3,5,10% of your revenue line items. These add up fast, and often contain a lot of the fat you could trim. We spend a lot of time wondering how to trim labour, but often travel, marketing, and office supplies get forgotten about. Transparency is the first step towards flexing those Process Improvement muscles.

Rinse and repeat for each fiscal quarter, using more tabs along the bottom. Download our template.

 

Visibility Matters

As the weeks creep by, replace your forecasted numbers with actual ones. Keep it brutally honest. 

You’re building a mirror that will allow you to stare back at your business’s cash health. It’s about making expenditures visible. When you’re forced to look at a business activity as cash out of pocket, you’re more likely to interrogate why you need it and to potentially cut it.

Remember: this is an organic document; build it with the intention of altering it. As the weeks creep on, edit it in real time and anticipate the impacts of that change as far forward as you realistically can. 

If you get the numbers wrong, don’t let your pride get in the way of changing whatever needs to be changed.  

 

Embrace Difficulty

If your business is struggling, this could be a hard exercise. If it’s only now becoming evident that it’s struggling, it could be even harder.  And that’s the point.

If you’re bleeding cash, now is the time to stop it. If you’re not, now is the time to know for sure.

embracing difficulty HLH

 

Track Your Cash Better, Part I

Track Your Cash Better, Part I

hand on calculator HLH“The fact is that one of the earliest lessons I learned in business was that balance sheets and income statements are fiction, cash flow is reality.” – Chris Chocola

You know how much cash your business has in the bank right now, but how much will there be in a week? How about in a month? 

If your business is an engine, cash is the oil lubricating it. If the cash dries up, it seizes. That’s why being able to anticipate our cash position is so important.

A 13-week cash flow report is a simple tool that you can use to predict and react to pending cash pressures. If your business is struggling (as so many are), this is vital. If your business is healthy, this report will make it healthier. 

In our next 2 blog posts, we’re going to introduce the 13-week report as a tool and tell you exactly how to create and use it. 

Why 13 Weeks? 

We typically know what our cash flow is for 2 time periods: the past and the year ahead. Unfortunately, the past is the past and the year ahead tends to get abstract. It’s a big chunk of time, and so much will happen that it’s difficult to accurately predict more than a few months ahead. (We learned that all too well back in March.)

On the other hand, very few businesses have a stable cash flow week-to-week. One week the payables come in and it’s Christmas, and the next week is payroll and suppliers’ bills. 

13 weeks, being a fiscal quarter, is the “Goldilocks” middle ground. It’s meant to provide enough time to iron out the ups and downs, but not so long that we need to speculate madly on what will happen 6 or 9 months away.

 

Why is this Useful?

First and foremost, you’ll be able to anticipate cash crunches more accurately and have the time to react to them. But watching your cash is about more than vigilance; it’s about focusing on what matters in your business financials.

We often get caught up in past costs, inventory, and other abstractions. Cash is a number that is real, present, and brutally honest. It’s the boiled-down truth of our businesses and we need to think about it more.

13-weeker benefits HLH

Be Honest (With Yourself)

It’s awful to bleed cash from a business you’ve poured your time, heart, and energy into. It’s even worse if you’ve invested your equity as well. But pretending it isn’t happening when it is won’t help anything – not a bank in the world accepts wishful thinking…

Doing these cash flow reports will keep you aware of how your business is really doing: the numbers go in, ugly or not. Having this kind of accurate information is the baseline you need to think strategically about your next move and to start moving your team in the right direction.

Next week:
How to Build It, Step by Step

Do you have a 30,000-foot view

Do you have a 30,000-foot view

Alberta is in an unprecedented economic time. The impact of the COVID-19 crisis on the energy and other sectors is already rippling out, and individual businesses are facing a perfect storm of money-sucking problems.

We’re re-doing our “Deadly Waste” articles—and we’re taking it up a few notches to help you adapt to this storm. The cost-saving ideas in these articles may be uncomfortable, but growing pains can hurt even when we know it’s for the best. 

Motion waste can feel petty. In a financially stressful time, it can feel like there are plenty of other, more pressing priorities. 

But motion waste is a symptom of general inefficiency and can be a real safety hazard. Letting it spread can endanger your staff and make other processes—often the most repetitive ones—take longer than needed.

Here’s how to get brutal with motion waste, even as your business adapts to life in a recession-hit Alberta.

 

30,000 Feet 

We’re in “adaptation mode,” and we’re stressed. Those two things combined are a recipe for a whole lot of wasted motion. 

In anxious times, especially with new processes, people are running this way and that, overlapping and bumping into each other (sometimes literally). This is called motion waste—the unnecessary movement of people or items within a work centre.

Like many of the deadly wastes, motion waste stems from good intentions. Your team is trying their best, and in times like these, they’re probably working even harder for the sake of the business and their families. Fortunately, like all deadly wastes, the key to eliminating it lies in communication and careful observation.

As soon as you start a new process, take the couple hours required to close the door, unite your team, and process it out. Start documenting once the major growing pains have been ironed out and things feel like they have started to roll (reasonably) smoothly. Engage your team to identify pain points and inefficiencies, and to think through how processes could adjust.

Keep the process organic and flexible enough to change on a dime. Waste begins the moment adaptability ends.  

 

Over Communicate 

Talking is easy during the good times and vital through the hard times. If you close your door when things get stressful, they will only get worse. You need to jump in.

Get on-site, at the front desk, or on the shop floor. Talk to your team about what’s working and what isn’t. And take time to watch; preferably long enough that others forget you’re there. 

The boss is the only one with a 30,000-foot view. You understand all the variables at play, and ultimately you make the calls. But to make the right decisions for your team, you need to hear from the front line over and over again about what is efficient and what isn’t. 

Create a central hub for communication—it could be as simple as a clipboard or communal whiteboard. Encourage people to use it and never penalize anyone for what they put on it (within reason, of course). 

 

Remember Safety 

Motion waste often implies safety issues, especially during a pandemic. Every time someone overextends to reach something or walks across a busy area unnecessarily, there’s a risk. While documenting your processes, address safety head-on. Your people are your biggest asset, now more than ever. Examine whether your processes are doing enough to keep your team, and your customers, as protected as possible.

Tackling motion waste, and any other form of waste, requires a commitment to tackling the problem. Waste happens when no one is paying attention. Empower your team to observe and report, with the confidence that they’ll be heard, and you’ll be able to trim it out.