Posts Tagged ‘capital’

Manage your costs, not just your $$$

by Guy Ralfe on June 17, 2009

A fundamental part of keeping the business going for an entrepreneur or a small business is maintaining the cash flow and profitability. You have to have enough resources to keep the business operational while you wait to receive the income from your products or services already delivered. I like to think of it in a bit of an agricultural way: You have to have keep buying feed and feeding the chicken to get it to lay the egg that you are going to sell.

In this economic downturn the common practice is immediately to start cutting costs. There is nothing wrong with that and it is actually the obvious thing to do since most businesses become complacent about managing operational cost during a growth economy. The trick is in knowing what costs you watch and cut. Going back to my chicken, if we start to compromise on how we feed the chicken, that is going to have an effect on what we have available to sell – if we drop the quality of the feed our egg will likely be smaller thus less valuable. If we reduce the amount of feed we give the chicken, then the rate of product available (eggs) will decline accordingly – ultimately declining until the chicken is dead and we are out of business! This is pure management of operational costs. If I then decided as the chicken farmer to spend two days a week mixing the feed for the chickens to save costs rather than going to the market and selling the fresh eggs this will also have a cost on my operation – lost opportunity!

What I see in reality is that we need to look at more than just the pure Dollar value of an organization’s operations and be more conscious of the other natural constraint that we have – Time. When a resource (man or machine) does one task or action, it not only performs that task but it also closes down all other opportunities at the same time – and this is a cost often overlooked!

We all have choices in what we do every day, and just like capital, we need to maximize the output from our Time.

…so as you go about your day, assess your contribution by what you are not doing and the cost of “Not doing” to your business?